Friday, 11 April 2008

PAL to buy 9 small aircraft, eyes tourist spots with small airports

Marian Grace S. Ramos with Reuters
BusinessWorld Online

PHILIPPINE AIRLINES (PAL) will buy up to nine small aircraft manufactured by Canada’s Bombardier Aerospace to tap into the growing interest in the country’s top tourist destinations.

In a statement, the Lucio Tan-owned flag carrier said the turbo propeller fleet would consist of three 50-seater Q300s and six 76-seater Q400 aircraft, to be delivered in four to six months at a cost of $150 million.

A PAL official who wished to remain unnamed said the company would use its own cash plus borrowings to pay for the new planes.

"The $150-million total investment would be sourced through a combination of borrowing from banking institutions and internally generated cash," the official said.

The Philippines’ flagship carrier presently focuses on international routes and larger domestic destinations served by jet aircraft.

But many of the Philippines’ top tourist destinations, including the resort island of Boracay and the deserted tropical coves of northern Palawan are served by smaller airports accessible only by turbo-prop aircraft.

Last year was a record for Philippine tourism with over three million arrivals, and the outlook is bright as increasingly wealthy tourists from nearby China seek warmer climates.

Singapore’s Banyan Tree Holdings said late last year it was investing $70 million to develop two top end hotels on Dinaran Island, northern Palawan.

In a phone interview, PAL Corporate Communications Manager Rene C. Soliman said PAL’s return to areas it had served before its June 1998 rehabilitation would create more revenues.

"This is a major development for PAL. It will expand our market or network to points we are not currently serving, which will translate to more revenues," he said.

He added that the market for destinations that PAL is going to service again have since developed.

The airline was forced to go under rehabilitation a decade ago because of a labor problem. Its graduation from rehabilitation last year was a first in the history of the corporate regulator.

PAL’s rehabilitation plan called for the retirement of smaller planes, forcing it to focus on jet operations in high traffic areas, Mr. Soliman said.

The company’s investment in the small aircraft came when jet fuel prices are skyrocketing. Jet fuel price has gone up by almost two-thirds to $135 per barrel, according to the International Air Transport Association (IATA).

"The local [aviation] market is somehow insulated [from higher jet fuel price]. Our structure with shorter routes plays to our advantage," Mr. Soliman said. He added that the company was aware of the fuel situation. "But if you want to expand your business, you have to make the necessary investments."

PAL is also due to take delivery of five A320 jets this year and six new Boeing 777-300ER jets starting in 2009. It is presently operating a 36-aircraft fleet consisting of six Boeing planes and 30 Airbus airplanes.

PAL’s arduous path back to financial health was due mainly to Mr. Tan, its majority shareholder and chairman and one of the country’s richest tycoons. The tobacco and beer magnate played a pivotal role in averting what was poised to be the country’s biggest corporate failure less than a decade ago.

He assembled a group of foreign companies that infused capital worth $200 million into the company in June 1999.

The seed money helped sustain debt payments to PAL’s creditors at a time when it was suffering losses. This was after fuel prices shot up following the terrorist attacks in the US on Sept. 11, 2001 and the outbreak of the severe acute respiratory syndrome (SARS). —

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