PAL, Cebu Pacific seen to survive COVID-19 bankruptcy fears

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Metro Manila (CNN Philippines, January 28) — Although air carriers continue to bleed financially as the COVID-19 pandemic cripples the travel sector, airlines can avoid bankruptcy—even with little or no help from the Philippine government.

That's according to Avelino D.L. Zapanta, a Philippine aviation industry expert, who said while bankruptcy is "always a possibility," Philippine Airlines and Cebu Pacific can still dig into the deep pockets of the Tan and Gokongwei Groups.

"Both the Tans and Gokongweis are resilient entrepreneurs," Zapanta, a former PAL president and chief executive officer, told CNN Philippines.

"If not from their own hoard of excess liquidity I believe for the length of time they have been in business they have established sources for capital infusion," Zapanta added.

Zapanta also said the airlines' situation is possible to "last till year end, if not, even beyond" as the pandemic rages on.

But he believes local carriers can still survive the year despite facing a turbulence in their overall operations.

Philstocks Financial Inc. senior research analyst Japhet Tantiangco also told CNN Philippines the recent moves of listed PAL Holdings, Inc. and Cebu Air, operators of PAL and Cebu Pacific, respectively, will help keep their businesses afloat amid the global health crisis.

This week, Cebu Air said it was seeking to raise $250 million, or about ₱12 billion, to finance its restructuring efforts.

PAL Holdings, on the other hand, earlier said it was hoping to hike its authorized capital stock to ₱30 billion.

"What the companies can do now is to raise capital in order to maintain the stability of their balance sheet," Tantiangco said.

"Another option for both is to apply for new debts to cover the existing ones. A challenge could arise however with this one in the form of tight lending standards. This is because the risks for these companies are seen to be currently relatively high due to the ongoing challenges of the airlines sector," the analyst said.

The Air Carriers Association of the Philippines or ACAP sought assistance from the Duterte administration last year as airlines faced "existential threat to their survival" amid the lockdown.

Both PAL and Cebu Pacific had conducted mass layoffs to cut expenses.

A long flight to recovery

Zapanta said while a worldwide race in inoculation against COVID-19 is now here following the swift development of vaccines, regaining flyers' full confidence will take time.

He said PAL and Cebu Pacific will continue to be burdened with aircraft leases as travel restrictions still weigh down their operations, translating to lost revenues.

"That's running in millions every so many days. The longer the pandemic lasts the slimmer the chance of the airlines to recover from the pit they are in," he added.

For January to September 2020, PAL Holdings saw its net loss balloon to ₱28.85 billion. Cebu Air, meanwhile, widened its losses to ₱5.54 billion in the same period.

This as air passenger traffic dropped by 80% as of end-September, flying only 12 million passengers compared to the 60 million passenger volume in 2019, data from the Civil Aeronautics Board showed on Wednesday.

READ: Airlines counting on local travel to recover from 2020 losses

Government assistance?

Roberto Lim, executive director of ACAP, said there were no government loans provided for airlines.

The government only waived aeronautical charges under the Bayanihan to Recover as One Act.

Zapanta said this was "way short of what the local airlines need."

During a hearing of the House Committee on Transportation, airlines called for stronger local tourism as international trips are once again dampened by the new COVID-19 variant.