PAL rehabilitation plan criticized by U.S. bank
PAL rehabilitation plan criticized by U.S. bank
MANILA (Reuters): The U.S. Export-Import Bank, one of the 9,000 creditors and lessors of ailing Philippine Airlines Inc (PAL), has objected to the flag carrier's rehabilitation plan, documents obtained on Monday showed.
"The plan as proposed is fatally flawed," law firm Sycip Salazar Hernandez and Gatmaitan, which represents Eximbank, said in a letter filed with the Securities and Exchange Commission (SEC).
U.S. Eximbank is the trustee of four Boeing 747-400 aircraft servicing trans-Pacific routes, particularly to Los Angeles and San Francisco.
"The plan is unfair to international secured lenders because it eliminates contractually agreed rights, fails to cure defaults and fails to follow the procedures described by the interim rehabilitation receiver of PAL," the letter said.
PAL submitted a five-year rehabilitation plan to the SEC on December 7. The SEC gave the airline's creditors until December 22 to submit their comments but some requested a five-week extension of the deadline.
The airline's rehabilitation plan calls for grace periods on repayment of principal to creditors, debt forgiveness on default interest and extensions of most loans.
But Eximbank's lawyers said the waiver on default interest would prejudice the American bank and transform it from a fully secured creditor to a partially secured creditor.
"Rather than treating Eximbank as a significant and fairly compensated creditor in any rehabilitated PAL, the plan effectively compels Eximbank to bear a substantial risk of the rehabilitation while receiving inadequate compensation in return," the letter said. "Eximbank objects to the plan."
Earlier, the airline's European creditors had rejected PAL's survival plan because they said it lacked two fundamental elements -- the presence of a strategic partner and infusion of $200 million in new equity.
PAL is still scouting for a strategic partner after separate talks with Hong Kong's Cathay Pacific Airways Ltd and Northwest Airlines Corp broke down in early December.
"Although PAL states that a strategic partner is a priority, the plan contains no strategy for attracting the investment of a strategic partner," Eximbank said.
The collapse of the negotiations with Cathay and Northwest also prompted PAL to cut the capital infusion it was seeking to $150 million from $200 million.
"The equity investment is insufficient to permit PAL to pay for the aircraft it has been using and plans to continue to use, nor is it sufficient to permit PAL to operate on realistic projections," Eximbank said.