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.