PAL opts for lease financing to buy new jets

By Loreto D. Cabañez | Manila Bulletin

Flag carrier Philippine Airlines (PAL) has opted to tap lease financing, a standard aviation industry financing mode, to bankroll its acquisition of the most modern aircraft for its ambitious $4.66-billion fleet modernization program in the next four years.

PAL has an outstanding order for six Airbus A350 900 XWBs and 21 Airbus A321neos (new engine option) with an estimated cost of $1.296 billion and $3.360 billion, respectively, for deliveries up to 2022.

PAL’s A350 900 first long-haul jet arrived to a water salute welcome at the Ninoy Aquino International Airport on Sunday while the first two A321 neos arrived last May and are now in service to Australia and Japan.

President Rodrigo R. Duterte honored PAL Chairman-CEO Dr. Lucio Tan on his 83rd birthday with his presence yesterday which also marked the rollout of the A350-900 and Airbus 321 neo jetliners.

But PAL is not expected to shell out that much money. Instead it will turn to the global aviation leasing companies to shoulder the heavy cost of aircraft acquisition.

Joseph Brian (JB) Tan, PAL vice president for corporate finance, disclosed that in the case of the first two A350-900s, the first one of which was received by PAL on Sunday after a ferry flight from Airbus manufacturing facility in Toulouse, France, the local carrier turned to SMBC Aviation Capital for a sale-leaseback financing.

He said under this scheme PAL sold the aircraft to SMBC aviation and leased its back. Lease payments are made by PAL on periodic basis, usually monthly. So, the airline is not burdened by the huge cost for the acquisition of the aircraft.

The leasing firm shoulders the asset acquisition cost but PAL has to shoulder the operational cost like asset insurance which also runs into millions of dollars, he added.

SMBC Aviation Capital is a leading global aircraft leasing company. It is owned and supported by a consortium of Japanese institutions Sumitomo Mitsui Banking Corp., Sumitomo Mitsui Finance and Leasing Co. Ltd., and Sumitomo Corporation. PAL may also stay with SMBC Aviation and/or may tap other leasing firms to finance the remaining four A350 jets to be delivered up to next year, JB Tan added.

SMBC Aviation claims from its website that every minute an aircraft it manages takes off or lands somewhere in the world.

In the case of the fleet of 21 medium-haul A321neos, PAL has already tapped Avolon and PK AirFinance, an affiliate of GE Capital Aviation Services for the early deliveries. Other leasing firm like SMBC Aviation Capital will also be invited for the rest of the order.

Avolon is an aircraft leasing company based on Dublin, Ireland. It was founded in 2010 by a team from RBS Aviation Capital and counts, among its investors Cinven, CVCC Capital Partners, Oak Hill Capital Partners, and the Government of Singapore Investment Corporation. As of last June, Avolon had owned, managed and committed fleet o 890 aircraft valued at $40 billion.

“The arrival of the A350 XWB will see PAL offer new levels of comfort on our long haul flights,” said Jaime J. Bautista, President & COO of Philippine Airlines. “At the same time we will benefit from the A350 XWB’s new generation efficiency, with a significant reduction in fuel consumption and lower maintenance costs. We believe that the A350 XWB will be a game changer for PAL as we compete with the best in the premium long haul market.”

“We are pleased to welcome Philippine Airlines as the latest operator of the A350 XWB,” said Eric Schulz, Chief Commercial Officer, Airbus. “The A350 XWB has set new standards for long haul flights, combining extra-long range capability with the lowest possible operating costs and the highest standards of comfort. We are confident that the A350 XWB will be a great success with Philippine Airlines and will enable the airline to reinforce its position as one of Asia’s leading international carriers.”

The A350 XWB is an all-new family of mid-size wide-body long-haul airliners shaping the future of air travel. The A350 XWB features the latest aerodynamic design, carbon fiber fuselage and wings, plus new fuel-efficient Rolls-Royce engines. Together, these latest technologies translate into unrivalled levels of operational efficiency, with a 25 per cent reduction in fuel consumption and significantly lower maintenance costs.

“We can better tap new long-haul markets that were not viably accessible with the older generation of single aisle aircraft,” said Bautista.

The first of the A350-900 aircraft will be utilized for PAL’s long-haul flights to North America and London, replacing the Boeing 777s now in use, Bautista said. It is slated for deployment on the non-stop Manila New York JFK and Manila-London routes. Services to other points in North America and Europe are expected to follow as more of the longer-haul aircraft join the fleet, Bautista added. Three other jets will be delivered for the rest of the year, while the remaining two will be delivered in 2019. Delivery of the 20 other A321neos will be up to 2020, PAL and Airbus officials said.

The flights of the A350-900 to New York (JFK) airport is slated to start on October 28, 2018. From July to October, the A350-900 jet will be operating on selected Asian and/or domestic routes for crew familiarization, PAL officials said

PAL is also planning to mount non-stop flights to New Delhi and Mumbai in India, a potentially rich source of tourists to the Philippines, by the last quarter of 2018. Direct flights from Manila to Sapporo in Japan’s northernmost island of Hokkaido is scheduled in the last quarter of this year,

He said PAL’s fleet buildup will continue up to year 2024, providing valuable support to its ultimate goal of 5-Star rating by Skytrak, a global airline rating organization.

“Our current fleet of 85 aircraft is already the largest in the country. We are aiming for 100-aircraft fleet by 2020, which places us in the category of a major carrier,” Bautista said in an earlier interview.

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