Jasmine Ball Nick S. Kaluk, III Elie J. Worenklein
DEBEVOISE & PLIMPTON LLP 919 Third Avenue
New York, NY 10022 Telephone: (212) 909-6000 Facsimile: (212) 909-6836 Counsel to the Debtor and Debtor in Possession
UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK
In re:
PHILIPPINE AIRLINES, INC.,
1Debtor.
Chapter 11
Case No. 21-11569 (SCC)
PERIODIC REPORT
PURSUANT TO BANKRUPTCY RULE 2015.3
Under the Federal Rules of Bankruptcy Procedure Rule 2015.3 (“Bankruptcy Rule 2015.3”), Philippine Airlines, Inc., the debtor and debtor in possession in the above captioned case (the “Debtor”), submits this report (this “Periodic Report”) on the value, operations, and profitability, as of December 31, 2020 and June 30, 2021, of certain non-Debtor entities in which the Debtor holds a substantial or controlling interest (the “Controlled Non-Debtor Entities”). This Periodic Report has been prepared solely for the purpose of complying with the Federal Rules of Bankruptcy Procedure. This Periodic Report includes those non-Debtor entities which are directly owned by the Debtor.
The following exhibits are attached hereto:
Exhibit A Debtor’s Direct Interest in the Non-Debtor Entities
Exhibit B-1a Balance Sheets for the Non-Debtor Entities as of December 31, 2020 Exhibit B-1b Balance Sheets for the Non-Debtor Entities as of June 30, 2021
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The Debtor in this chapter 11 case, along with its registration number in the Philippines, is Philippine Airlines, Inc., Philippine Securities and Exchange Commission Registration PW 37. The Debtor’s corporate headquarters is located at PNB Financial Center, President Diosdado Macapagal Avenue, CCP Complex, Pasay City 1300, Metro Manila, Philippines.
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Exhibit B-2a Income Statements for the Non-Debtor Entities as of December 31, 2020 Exhibit B-2b Income Statements for the Non-Debtor Entities as of June 30, 2021 Exhibit C Description of Operations for the Non-Debtor Entities
Exhibit D Description of Claims Between the Controlled Non-Debtor Entities as of June 30, 2021
Exhibit E Description of how federal, state, or local taxes, and any tax attributes, refunds, or other benefits, have been allocated between or among the Controlled Non-Debtor Entities (include a copy of each tax sharing or tax allocation agreement which governs these transactions).
Exhibit F Description of Controlled Non-Debtor Entity’s payments of
Administrative Expenses, or Professional Fees otherwise payable by the Debtor.
The undersigned, having reviewed the attached exhibits and this Periodic Report, and being familiar with the Debtor’s financial affairs, verifies under the penalty of perjury that this Periodic Report is complete, accurate, and truthful to the best of his knowledge.
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3 Date: November 1, 2021
By: /s/ Nilo Thaddeus Rodriguez
Name: Nilo Thaddeus Rodriguez
Title: Chief Financial Officer
Company: Philippines Airlines, Inc.
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General Notes
Description of this Chapter 11 Case
On September 3, 2021 (the “Petition Date”), the Debtor filed a voluntary petition for reorganization under chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York (the
“Bankruptcy Court”). The Debtor continues to operate its business and manage its properties as debtor and debtor in possession, pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. This chapter 11 case (the “Chapter 11 Case”) is pending before the Honorable Shelley C. Chapman. Additional information about this Chapter 11 Case, court filings, and claims information may be obtained free of charge by visiting the KCC website at www.kccllc.net/PAL.
Financial Statements
The Debtor is providing balance sheets and income statements (the “Financial Statements”) for each of the non-Debtor entities that are directly “controlled” by the Debtor, as that term is defined in Bankruptcy Rule 2015.3. The Financial Statements are unaudited, preliminary, and were not prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The Financial Statements have been derived from the books and records of the Debtor and the Controlled Non-Debtor Entities and include primarily normal recurring adjustments, but do not include all of the adjustments that would typically be made in accordance with U.S. GAAP. If U.S. GAAP procedures had been applied in full, the Debtor believes that the financial information could be subject to material change.
Although the Debtor’s management made reasonable efforts to ensure that the financial information is accurate and complete based on information that was available to them at the time of preparation, subsequent information or discovery may result in material changes to the information. Notwithstanding any such discovery, new information, or errors or omissions, the Debtor does not undertake any obligation or commitment to update this Periodic Report. Nothing contained in this Periodic Report shall constitute a waiver of any rights of the Debtor, including the right to amend the information contained herein.
The financial information disclosed herein was not prepared in accordance with federal or state securities laws or other applicable non-bankruptcy law or in lieu of complying with any periodic reporting requirements thereunder. Persons and entities trading in or otherwise purchasing, selling, or transferring the claims against or equity interests in the Debtor should evaluate this financial information in light of the purposes for which it was prepared. The Debtor is not liable for and undertakes no responsibility to indicate variations from securities laws or for any evaluations of the Debtor based on this financial information or any other information.
The results of operations contained herein are not necessarily indicative of results
which may be expected for any other period or for the full year 2021 and may not necessarily
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reflect the consolidated results of operations and financial position of the Debtor or any non- Debtor entity in the future. Further, this Periodic Report is limited in scope, covers a limited time period, and has been prepared solely for purposes of fulfilling the requirements of Bankruptcy Rule 2015.3. Given, among other things, the uncertainty surrounding the realization, measurement, and ownership of certain assets and the valuation and nature of certain liabilities, to the extent that a non-Debtor entity shows more assets than liabilities, this is not an admission that the non-Debtor entity was solvent on the Petition Date or at any time prior to the Petition Date, including the date as of or for the period of any financial statements or other information included in this Periodic Report. Likewise, to the extent that a non- Debtor entity shows more liabilities than assets, this is not an admission that the non-Debtor entity was insolvent on the Petition Date or at any time prior to the Petition Date, including the date as of or for the period of any financial statements or other information included in this Periodic Report.
The balance sheets and statements of income have been included for the non-Debtor affiliates to the extent available on a basis consistent with the Debtor’s consolidated financial statements. Statements of cash flow and statements of changes in stockholders’ equity are not prepared at the individual entity basis in the ordinary course of business. Accordingly, cash flow statements and statements of changes in stockholders’ equity have not been included with this report.
Adjustment to Accounts or Balances
Possible significant future adjustments may include:
(1) Intercompany balances adjustments;
(2) Adjustments to tax accruals and valuations;
(3) Exchange rate fluctuations; and (4) Changes to investment in subsidiaries.
Intercompany Transactions
Receivables and payables between the Controlled Non-Debtor Entities and the Debtor and/or among the various Controlled Non-Debtor Entities have not been eliminated. No conclusion as to the legal obligation related to these intercompany transactions is made by this Periodic Report.
Valuation
The Debtor does not maintain fair market value or any other bases of valuation for
these non-Debtor entities. The valuation information provided herein is based on the book
value of the non-Debtor entities (book value of assets less book value of liabilities), which
may differ substantially from the fair market value of these entities.
6 Reservation of Rights
Nothing contained in this Periodic Report shall constitute a waiver or admission by the Debtor in any respect, nor shall this Periodic Report or any information set forth herein waive or release any of the Debtor’s rights or admission with respect to this Chapter 11 Case, or its estate, including with respect to, among other things, matters involving objections to claims, substantive consolidation, equitable subordination, defenses, characterization or re- characterization of contracts, assumption or rejection of contracts under the provisions of chapter 3 of the Bankruptcy Code and/or causes of action under the provisions of chapter 5 of the Bankruptcy Code or any other relevant applicable laws to recover assets or avoid transfers. The Debtor is reviewing the assets and liabilities of its affiliates on an ongoing basis, including without limitation with respect to intercompany claims and obligations, and nothing contained in this Periodic Report shall constitute a waiver of any of the Debtor’s or its affiliates’ rights with respect to such assets, liabilities, claims and obligations that may exist.
Currency
The amounts herein are presented in United States dollars, unless otherwise stated.
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7 Exhibit A
Debtor’s Direct Interest in Controlled Non-Debtor Entities
The Debtor holds a substantial or controlling interest of the equity interests in the following entities.
Non-Debtor Entity % of Ownership
Sabre Travel Network (Philippines), Inc. 83%
Fortunate Star Limited 65%
Mabuhay Miles Inc. ~100%
Mabuhay Maritime Express Transport Inc. 100%
8 Exhibit B-1a
Balance Sheets for the Non-Debtor Entities as of December 31, 2020
Fortunate Star Ltd.
Sabre Travel Network Philippines, Inc.
Mabuhay Maritime Express Transport, Inc.
Mabuhay Miles, Inc.
(In Whole U.S. Dollars)
ASSETS
Current Assets
Cash and cash equivalents 640,212 3,087,798 245,856 -
Receivables - net 236,481,416 248,725 1,454,041 265,959
Expendable parts, fuel, materials and supplies - 7,041 20,399 -
Other current assets - 19,080 109,205 582,136
Total Current Assets 237,121,628 3,362,644 1,829,501 848,095
Noncurrent Assets
Property and equipment - @ cost 642,092,485 826,177 15,327,969 113,501
Other noncurrent assets - 12,984 - -
Total Noncurrent Assets 642,092,485 839,161 15,327,969 113,501
TOTAL ASSETS 879,214,113 4,201,805 17,157,470 961,596
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable - 588,107 4,799,619 457,078 Accrued expenses 4,684,964 1,677,970 7,490 - Current portion of long-term obligations 347,272,880 - 670,482 - Total Current Liabilities 351,957,844 2,266,077 5,477,591 457,078
Noncurrent Liabilities
Long-term obligations - net of current portion - - 15,421,079 . Accrued employee benefits - 73,485 - - Reserves and other noncurrent liabilities 64,142,411 - 12,936,314 - Total Noncurrent Liabilities 64,142,411 73,485 28,357,393 - Total Liabilities 416,100,255 2,339,562 33,834,984 457,078
Equity
Capital stock 50,000 2,679,889 8,020,426 997,009
Deposits for future stocks subscription 293,274,000 - - 9,985
Other comprehensive gain (loss) - (373,791) (311,149) (882,206)
Retained earnings (deficit) 169,789,858 (443,855) (24,386,792) 379,730
Total Equity 463,113,858 1,862,243 (16,677,514) 504,518
TOTAL LIABILITIES AND EQUITY 879,214,113 4,201,805 17,157,470 961,596
9 Exhibit B-1b
Balance Sheets for the Non-Debtor Entities as of June 30, 2021
Fortunate Star Ltd.
Sabre Travel Network Philippines, Inc.
Mabuhay Maritime Express Transport, Inc.
Mabuhay Miles, Inc.
(In Whole U.S. Dollars)
ASSETS
Current Assets
Cash and cash equivalents 640,280 2,882,930 699,586 -
Receivables - net 284,832,606 287,375 1,402,007 265,959
Expendable parts, fuel, materials and supplies - - 25,659 -
Other current assets - 22,600 115,341 582,136
Total Current Assets 285,472,886 3,192,905 2,242,593 848,095
Noncurrent Assets
Property and equipment - @ cost 620,714,518 724,939 15,070,576 113,501
Other noncurrent assets - 3,206 - -
Total Noncurrent Assets 620,714,518 728,145 15,070,576 113,501
TOTAL ASSETS 906,187,404 3,921,050 17,313,169 961,596
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable - - 6,089,023 457,078 Accrued expenses 6,973,886 2,097,667 7,371 - Current portion of long-term obligations 347,272,880 - 1,903,505 - Total Current Liabilities 354,246,766 2,097,667 7,999,899 457,078
Noncurrent Liabilities
Long-term obligations - net of current portion - - 13,372,602 . Accrued employee benefits - 177,447 - - Reserves and other noncurrent liabilities 64,142,411 118,558 12,730,340 - Total Noncurrent Liabilities 64,142,411 296,005 26,102,942 - Total Liabilities 418,389,177 2,393,672 34,102,841 457,078
Equity
Capital stock 50,000 2,679,889 8,020,426 997,009
Deposits for future stocks subscription 293,274,000 - - 9,985
Other comprehensive gain (loss) - (480,064) 786,146 (882,206)
Retained earnings (deficit) 194,474,227 (672,447) (25,596,244) 379,730
Total Equity 487,798,227 1,527,378 (16,789,672) 504,518
TOTAL LIABILITIES AND EQUITY 906,187,404 3,921,050 17,313,169 961,596
10 Exhibit B-2a
Income Statements for the Non-Debtor Entities as of December 31, 2020
(In Whole U.S. Dollars)
Fortunate Star Ltd.
Sabre Travel Network Philippines,
Inc.
Mabuhay Maritime Express
Transport, Inc.
Mabuhay Miles, Inc.
REVENUES
Booking Commissions 393,010
Lease income 106,347,411
106,347,411 393,010 — —
EXPENSES
Depreciation 47,451,745 682,066
Maintenance 29,847 45,252
Ground Handling and Traffic Servicing 181,549
Passenger service 25,577
Fuel & Oil 62,000
Hull Insurance 115,667
Reservation and sales 28,654
General and administrative 1,274,245 39,316 6,621
47,451,745 1,332,746 1,511,427 6,621
OPERATING INCOME (LOSS) 58,895,666 (939,736) (1,511,427) (6,621)
OTHER (INCOME) CHARGES
Financing charges 15,671,491 777,725
Other Charges (Income)-net 73,798,916 (59,773) 1,035,249 (47,659)
89,470,407 (59,773) 1,812,974 (47,659) NET INCOME (LOSS) BEFORE INCOME TAX (30,574,741) (879,963) (3,324,401) 41,038
INCOME TAX EXPENSE (BENEFIT) 109 (2,003)
NET INCOME (LOSS) (30,574,741) (879,963) (3,324,510) 43,041
OTHER COMPREHENSIVE INCOME (LOSS)
total net of deferred income tax effect
TOTAL COMPREHENSIVE INCOME (LOSS) (30,574,741) (879,963) (3,324,510) 43,041
11 Exhibit B-2b
Income Statements for the Non-Debtor Entities as of June 30, 2021
(In Whole U.S. Dollars)
Fortunate Star Ltd.
Sabre Travel Network Philippines, Inc.
Mabuhay Maritime Express
Transport, Inc.
Mabuhay Miles, Inc.
REVENUES
Booking Commissions 252,127
Lease income 51,238,886
51,238,886 252,127
EXPENSES
Depreciation 21,377,966 332,956
Maintenance 11,642 25,991
Ground Handling and traffic servicing 84,148
Fuel & Oil 32,632
Insurance 70,278
General and administrative 484,403 237,753
21,377,966 496,045 783,758 —
OPERATING INCOME (LOSS) 29,860,920 (243,918) (783,758) —
OTHER (INCOME) CHARGES
Financing charges 5,176,618 416,255
Other Charges (Income)-net (68) (15,326) 9,411
5,176,550 (15,326) 425,666 —
NET INCOME (LOSS) BEFORE INCOME TAX 24,684,370 (228,592) (1,209,424) —
INCOME TAX EXPENSE (BENEFIT) 29
NET INCOME (LOSS) 24,684,370 (228,592) (1,209,453) —
OTHER COMPREHENSIVE INCOME (LOSS)
total net of deferred income tax effect
TOTAL COMPREHENSIVE INCOME (LOSS) 24,684,370 (228,592) (1,209,453) —
12 Exhibit C
Description of Operations for the Non-Debtor Entities
Non-Debtor Entity Description of Business
Sabre Travel Network (Philippines), Inc.
Engages in the development and marketing of computerized airline reservation system
Fortunate Star Limited A holding company of various entities with whom the Debtor has lease agreements.
Mabuhay Miles Inc. Established to promote the frequent flyer program of the Debtor.
Commenced operations in 2018 and ceased its operations in 2019.
Mabuhay Maritime Express Transport Inc.
Engaged in the water transportation of passengers and cargoes.
Commenced and ceased operations in 2019.
13 Exhibit D
Description of Claims between the Controlled Non-Debtor Entities as of June 30, 2021
The claims shown are intercompany claims arising from the normal course of business.
(In Whole U.S.
Dollars) RECEIVABLE FROM (PAYABLE TO)
Philippine Airlines, Inc.
Fortunate Star Ltd.
Sabre Travel Network Philippines, Inc.
Mabuhay Maritime Express Transport,
Inc.
Mabuhay Miles, Inc.
DEBTOR ENTITY:
Philippine Airlines,
Inc. (47,990,195) 3,174,621
NON-DEBTOR ENTITIES:
Fortunate Star Ltd. 47,990,195 Sabre Travel
Network Philippines, Inc.
Mabuhay Maritime Express Transport, Inc.
(3,174,621)
Mabuhay Miles, Inc. (457,078)[1]
44,358,496 (47,990,195) - 3,174,621 -
[1] Payable to Debtor in Mabuhay Miles, Inc.'s books has been taken up as expense in the Debtor's books.
