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Philippine Airlines orders 54 Airbuses worth $7 bn

Cecil Morella
Philippine Airlines planes are seen on the tarmac of the international airport in Manila. The airline announced Tuesday it had ordered 54 Airbus aircraft with a list price of $7 billion, and planned to buy dozens more planes in a spectacular move to rejuvenate Asia's oldest carrier.

Philippine Airlines announced Tuesday it had ordered 54 Airbus aircraft with a list price of $7 billion, and planned to buy dozens more planes in a spectacular move to rejuvenate Asia's oldest carrier.

The initial orders would more than double PAL's current fleet of 39 planes, and allow it to serve more long-haul international routes while meeting the challenges of intense low-cost competition at home.

"The orders we are placing with Airbus will play a key role in revitalising PAL and growing trade and tourism in the country," PAL chairman Lucio Tan and president Ramon Ang said in a joint statement.

In a separate statement Airbus said the "firm orders" were for 44 single-aisle A321 planes and 10 long-haul A330-300s. Delivery would start next year with the final planes of the batch ready to start flying in 2015.

PAL said the orders had a list price of $7 billion. But airlines typically negotiate big discounts on such deals and PAL officials refused to say exactly how much the airline would pay.

Ang told reporters PAL was looking to buy 100 new planes in total, and that discussions were under way with Boeing as well as Airbus to secure the extra aircraft.

"Our intention is to buy up to 100 aircraft, 26 of that will be long range, wide body," Ang said.

The PAL announcement comes after San Miguel, one of the Philippines' biggest conglomerates, bought a 49-percent stake in the loss-making carrier for $500 million in April, and took over management.

Ang is president of San Miguel while billionaire Tan, an ethnic Chinese tycoon who is the country's second-wealthiest man, remains PAL's controlling shareholder.

Ang said raising the money to finance the fleet expansion would not be a problem, with PAL to initially use the $500 million injection from San Miguel, and loans potentially also to be taken out.

He said San Miguel, famous for its beer but which has embarked on an aggressive and successful diversification programme over the past decade, was prepared to put more money into PAL if needed, as was Tan.

Ang also emphasised that the carrier had returned to profit following some major restructuring that included the outsourcing of 2,600 jobs, although he said balance sheet specifics would not be released for a couple of months.

PAL, which began flying in 1941, reported a net loss of $33.5 million in the three months to December, reversing a profit of $15.1 million from the same period the previous year.

It had said the losses were mainly due to soaring fuel costs.

However the airline's reputation had also declined, with passengers complaining of old planes, limited flight options and poor service.

PAL also lost its status as the nation's top carrier, with low-cost airline Cebu Pacific establishing itself in recent years as the biggest in terms of ticket sales and number of routes.

Cebu Pacific last year ordered 23 Airbus 320 and 30 Airbus A321 neo aircraft to add to its fleet of 25 A320s, and in January leased eight A330s for long-haul flights.

With Tuesday's deal, PAL has set itself on a course to regain its status as the biggest player in the Philippine aviation industry.

"This is the right strategy for the PAL Group," Brendan Sobie, chief analyst for Australia-based Centre for Aviation, told AFP in an e-mail.

"But it still faces many challenges and PAL has to overcome many obstacles in order to achieve sustained profitability."

He said PAL was adopting strategies employed by other Asian airlines of building a budget brand -- Airphil Express -- to take on low-cost rivals while also building its premium and long-haul products.

Manila-based Security Bank economist Patrick Elia said PAL would be able to access extra capital, with lenders taking into account San Miguel's strong financial position and track record in successfully entering new industries.

Shares in PAL's locally listed parent firm, PAL Holdings Inc., closed 0.70 percent higher on Tuesday at 7.15 pesos (16.90 US cents).