Philippine Airlines Inc. (PAL) is in talks to invest in a foreign carrier as it seeks to expand operations after winning investment from San Miguel Corp. (SMC)
“There are several opportunities for PAL to acquire other companies in the region,” President Ramon Ang told reporters in Manila yesterday. “Yes, we’re in talks to invest in a foreign airline,” he later said in a mobile-phone message.
Philippine Air plans to order at least 100 new planes in the next five years, resume flights to Europe and bolster US services, Ang said in April. The company will be positioned as a low-cost brand, he said yesterday as the carrier seeks to fend off competition from Cebu Air Inc. (CEB) and other regional rivals.
“I can see the logic of buying a regional airline if it is to expand their network and the brand and enhance the image,” said Jomar Lacson, an analyst at Campos Lanuza & Co. in Manila. “There are several airlines in the region with problems which PAL can buy at a discount.”
Philippine Air’s long-haul expansion plans depend upon the nation improving safety standards, Ang said earlier this year. The country is blacklisted by the European Union and has a Category 2 rating from the US Federal Aviation Administration, meaning it doesn’t meet international regulations.
San Miguel, which started as a brewer more than a century ago before becoming the Philippines’ largest company by sales, is evaluating about 10 deals “on the table right now,” Ang said. It is also “seriously considering” investing in a broadcast network. The company’s appetite for acquisition is “still quite strong” after investing $500 million in Philippine Air, he said earlier.
The company has expanded from food and drinks to industries including oil, power and infrastructure to meet a target of doubling sales. Its purchase of almost half of Philippine Air and low-cost affiliate Air Philippines Corp. will boost San Miguel’s sales this year to almost $20 billion, at least three years ahead of target, Ang said.
Profit will rise this year helped by investments in new businesses even as unit Petron Corp. (PCOR) may be “temporarily affected” by declining oil prices, Ang said.
San Miguel plans to sell preferred shares in September and may use the funds to buy the government’s shares in the company, Ang said. The company has the option to buy back the government’s 754 million preferred shares at 75 pesos each, according to its 2010 annual report.