Ramon Ang, not MVP, to buy Philippine Airlines (PAL)

James Ryan Jonas

It’s confirmed: Ramon Ang of San Miguel Corporation (SMC) is interested in acquiring a substantial interest in the country’s carrier Philippine Airlines. Ang himself confirmed this in a report by ABS-CBN News.
San Miguel Corp. is said to be in the middle of due diligence at present where they look into the financial statements and operations of PAL before making a final bid amount.
According to the news report, SMC and PAL signed an agreement on December 23 allowing the former to conduct the audit until January 31, 2012.
Not Manny Pangilinan
Just a few months ago, in September, Metro Pacific Investments Corp. (MPI) Chairman Manny Pangilinan was rumored to be the one interested in buying PAL.
The rumor emerged after telecom giant PLDT, a company under Pangilinan’s holding firm, incorporated an aviation-related firm called Pacific Global One Aviation, Inc. Although PLDT said the move was simply meant to “rationalize PLDT Group’s internal aviation requirements,” analysts say it was a prelude to PLDT buying into PAL.
Meralco bidding war
For now, it looks like the new company really was formed for PLDT’s operational efficiency and not for possible PAL acquisition. Unless, of course, Pangilinan decides to go into the airline business and start a bidding war with Ramon Ang to acquire PAL — similar to what the two did with utilities company Meralco back in 2009.
That year, Meralco shares reached a peak of P300.00 apiece, with the price rising by 275% from January to July. The rally was attributed to a battle for control between Pangilinan’s MPI and Ang’s SMC. In the end, Pangilinan won the battle, relegating SMC to the minority bloc.
The stock of PAL Holdings, parent company of Philippine Airlines, jumped 16% to close at P6.97 yesterday. At midday trading today, PAL shares are trading at P7.28, up another 4.45%.
The future of PAL
Industry pundits, however, are not that optimistic about the future of PAL as leading player in the local airline industry. In recent years, low-cost player Cebu Pacific (CEB) has managed to snatch from it a large chunk of customers. Cebu Pacific has also claimed to be the number one airline in terms of passengers flown to local destinations.
Apart from the competition, PAL is also waging a battle against its unionized employees who were laid off in October 2011 following a massive outsourcing plan meant to drive down PAL’s operating costs.
At the same time, oil prices have been volatile which is a detriment to PAL’s bottom line.
These factors have caused PAL to incur losses amounting to $300 million during the past three years. In the three-month period alone (April to June 2011), the airline posted an additional $10.6 million loss.
Whether Ramon Ang sees PAL as a good investment will be known if he makes an acquisition bid next year.
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James Ryan Jonas teaches business management, investments, and entrepreneurship at the University of the Philippines (UP). He is also the Executive Director of UP Provident Fund Inc., managing and investing P3.2 Billion ($56.4 Million) worth of retirement funds on behalf of thousands of UP employees.