Bloomberg News

Philippine Air to Order 100 Planes After San Miguel Deal

April 27, 2012

Ramon Ang, president of Philippine Airlines Inc. and of San Miguel Corp. Photographer: Julian Wainwright/Bloomberg

Ramon Ang, president of Philippine Airlines Inc. and of San Miguel Corp. Photographer: Julian Wainwright/Bloomberg

Philippine Airlines Inc. plans to order at least 100 new planes, resume flights to Europe and bolster U.S. services after selling a stake to San Miguel Corp. (SMC)

The carrier’s two main owners will provide $1 billion to help fund the fleet plan, Ramon Ang, president of the airline and of San Miguel, said in an interview in Manila yesterday. San Miguel will inject $750 million in PAL and affiliate Air Philippines Corp., including a $500 million stake purchase, while billionaire Lucio Tan will deliver the rest, he said.

“PAL will institute more improvement, offer a better service and fly newer planes,” said Ang, who’s a qualified pilot. “PAL is a good company -- despite the problems, it’s always been above water.”

The carrier wants to join a global alliance, Ang said, to spread its international reach and to help compete with Singapore Airlines Ltd. (SIA) and Emirates Airline on long-haul routes. San Miguel may also build an airport near Manila to help the airline improve services and to extend its own push away from a traditional focus on food and beverages, Ang said.

The 100 new planes, including single-aisle and twin-aisle models, will be divided across PAL and Air Philippines. Ang didn’t say how many aircraft the carriers would retire. The group will do more business with Boeing Co. (BA:US) than previously, he said, without elaboration.

“Philippine Airlines has problems, but once they fix it, they could enhance” market share, said Jomar Lacson, an analyst at Campos Lanuza & Co. The brand is a “powerful asset.”

PAL Holdings Inc. (PAL), the carrier’s holding company, fell 1.1 percent to 7.45 pesos at close in Manila trading. San Miguel slid 0.3 percent, while the benchmark index declined 1 percent.

Safety Standards

Philippine Air’s long-haul expansion plans depend upon the Philippines improving safety standards, Ang said. The country is blacklisted by the European Union and has a Category 2 rating from the U.S. Federal Aviation Administration, meaning it doesn’t meet international regulations.

PAL will “immediately” resume flights to Europe once Philippine carriers are allowed in, Ang said, listing Paris, London and Spain as possible destinations. In the U.S., the carrier is looking at New York, Chicago and Florida, he said. It already flies to San Francisco, Los Angeles, Las Vegas and Vancouver in North America.

PAL has 37 aircraft, according to its website. The fleet includes seven Boeing jets and 30 made by Airbus SAS.

PAL Losses

San Miguel started looking at an investment in PAL, then controlled by Tan, about a year ago, Ang said. The 71-year-old carrier was seeking new funds after losing market share to budget airline Cebu Pacific. PAL reported losses in the first three quarters of the fiscal year that started April 2011.

The carrier, which cut 2,400 jobs when it outsourced catering and other ground services, will add workers as it expands, Ang said. PAL may also hand domestic and short regional flights to Air Philippines (CEB), while it focuses on long-haul, full- service trips, Ang said.

“Today in Manila, you are competing with low-cost carriers,” he said. ‘Therefore, you should also be a low-cost carrier to compete.’’

San Miguel may pitch plans for the new four-runway airport to the government in the “near future,” Ang said. Construction of the facility, able to handle 100 million passengers annually, could begin this year, he said.

The company, founded as a brewery more than a century ago, is already set to open a new airport on the resort island of Boracay within two years, Ang said. San Miguel has also invested in railways, roads and energy companies to bolster margins.

To contact the reporters on this story: Clarissa Batino in Manila at cbatino@bloomberg.net Cecilia Yap in Manila at cyap19@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net; Frank Longid at flongid@bloomberg.net


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