The group of taipan Lucio C. Tan has officially taken over the reins of legacy carrier Philippine Airlines (PAL) anew, after it completed a $1-billion buyback program involving the shares held by a unit of San Miguel Corp. (SMC).
An insider from the airline said the SMC Group has already received the payment for its shares in the flag carrier. Tan now fully owns Trustmark Holdings Corp., which has an 89.78-percent equity in PAL Holdings Inc., the operator of the flag carrier.
This development finally puts to a close the ownership issue that has been hounding the carrier for months now.
“The two parties have already sealed the transaction. The SMC Group has received the payment,” the source, who is privy to the matter, said in a phone interview. “The LT Group has finished acquiring SMC’s stake in PAL.”
Before the transaction, San Miguel Equity Investments Inc., a unit of the food-to-infrastructure firm, held a 49-percent shareholding in Trustmark, while the controlling stake was held by Tan family.
To recall, the conglomerate led by businessman Ramon S. Ang acquired a minority stake in the Tan family’s airline in 2012 for $500 million. Since then, the firm has been pumping in money to modernize the fleet of the legacy carrier.
Before the transaction, Tan expressed his willingness to sell his equity in the flag carrier, prompting the SMC Group to look for potential partners to lift the airline up from its plummeting bottom line.
But talks sprouted early this quarter about a potential buyback transaction by the Tan family. Sources said the country’s second wealthiest man wanted to take full control of PAL again due to issues on lost family privileges, early-retirement benefits and fuel-supply agreements with Petron Corp.
Officials from the two firms, however, were mum as to the real reason behind the sudden change of direction.
“The parties are bound by a confidentiality agreement. The LT Group has yet to file a tender offer. But the transaction has been completed. What remains to be done is the formal filing of the offer,” the source said.
Tan was said to have secured funding from major banks in the country, including BDO Unibank Inc., China Banking Corp., Philippine National Bank and Asia United Bank to acquire the stake of the SMC unit.
The source added that former PAL President Jaime J. Bautista has been appointed as the general manager of the airline.
However, the source could not confirm other changes in the leadership of the airline. Tan sits as the chairman and CEO of PAL, while Ang serves as the airline’s president and COO.
Analysts said the transaction is an advantageous deal for both firms.
“It’s a win-win deal for both, with El Kapitan [Tan] getting one of his cherry assets back, and San Miguel being more liquid with its gain from the investment,” First Grade Holdings Inc. Managing Director Astro C. del Castillo said in a phone interview.
He explained that both firms can now focus on their different business, while still benefiting from a good relationship.
“Somehow they will still complement each other, with PAL still needing the fuel from Petron while tapping the food businesses of San Miguel, which is now gaining access to transport. I think it’s a win-win deal for both,” del Castillo added.
Accord Capital Equities Corp. analyst Justino B. Calaycay noted that the government’s thrust for a more liberal open-skies policy and the refleeting program launched by SMC open fertile grounds for fresh revenue streams.
PAL Holdings successfully dished out an income backflip, after it posted a net profit of P1.49 billion in the second quarter of 2014 from a net loss of P1.08 billion in the same three-month period in 2013.
PAL Holdings has a market capitalization of P144.05 billion.
As of end-June its fleet is composed of 85 aircraft composed of six Boeing 777-300ER, four Boeing 747-400, five Bombardier DHC 8-400, four Bombardier DHC 8-300, 10 Airbus A340-300, 18 Airbus A330-300, seven A321-231, 28 Airbus A320-200, and three Airbus A319-100.
Shares of PAL Holdings shed four centavos, or 1 percent, to close at P5.76 apiece on Monday from P5.80 each on Friday.