A U.S. Bankruptcy Court has approved several restructuring support agreements Philippine Airlines (PAL) has with stakeholders and it has approved Lucio Tan companies to recapitalise the airline to the tune of US$505 million.

PAL says in a statement the court’s approval of the agreements and US$505 million financing “is the critical, initial step towards confirmation of the consensual chapter 11 restructuring plan that has the support of substantially all of PAL’s primary aircraft lessors and lenders, original equipment manufacturers and maintenance, repair, and overhaul service providers, and certain funded debt lenders.”

“This important step confirms that our recovery process is on track as we continue to work hard on securing a fully consensual reorganization plan in an efficient manner,” says Gilbert Santa Maria, PAL president and chief operating officer.

The statement says the US$505 million capital injection comprises of a US$250 million first lien secured tranche A multi-draw term loan and a second lien secured tranche B multi-draw term loan facility of $255 million.

The US$505 million is being provided by PAL’s majority owner who is Philippine billionaire Lucio Tan who also owns tobacco, liquor and other businesses in the Philippines. It has been widely reported over the years that Tan would have ordinarily offloaded his stake in loss-making PAL but has held onto it, because he has a strong emotional attachment to the airline which is the flag carrier of the Philippines.

The financing could be converted, at PAL’s discretion, to long-term unsecured debt and equity—rather than repay in cash—upon emergence from chapter 11, says the airline.

Nilo Thaddeus Rodriguez, PAL chief financial officer, says: “The additional liquidity is needed to meet our current and future obligations and to continue operating as usual.”

“PAL will emerge a leaner and more competitive airline thanks to our hardworking employees, the resolute commitment of our majority shareholder [Lucio Tan companies] and the strong support from our stakeholders and creditors,” he adds.

PAL says it will continue to operate flights and it expects to continue to meet all its current financial obligations throughout the Chapter 11 process to employees, customers, the government, and its lessors, lenders, suppliers, and other creditors.

The airline filed for chapter 11 bankruptcy protection in the US on 3 September after reaching agreements with many lessors and creditors on a company restructuring that includes a substantial fleet reduction.

This involves reducing its 90-aircraft fleet by 25%. Aircraft to leave reportedly include: four of its six Airbus A350s, four of its 10 Boeing 777s, seven of its 15 Airbus A330s as well as four Airbus A320s and two De Havilland Aircraft of Canada Dash 8-400s.

PAL has also delayed delivery of 13 Airbus A320neos it has on order to sometime after 2025.

It is positioned as a full-service premium carrier and remains the number one Philippine international airline, but in the domestic air travel market it trails far behind low-cost carrier Cebu Pacific Air in market share.

It has tried to compete domestically by turning its subsidiary Air Philippines, which operates at PAL Express, into a lower-cost operator with its fleet of Airbus A320-family aircraft and Dash 8s.

PAL is still the stronger carrier internationally because it has valuable airport slots at Manila airport and at overseas destinations popular with Filipinos such as Los Angeles.