Philippine Airlines FY21 net income surged 182% on one-off restructuring gains
Philippine Airlines [PAL 6.30 0.79%] [link] reported FY21 net income of P5.9 billion, up 182% from its FY20 net loss of P7.2 billion.
PAL reported that its consolidated revenues were 6.2% higher in FY21, at P58.7 billion, which it mainly attributes to its air cargo segment.
PAL refers to its own air cargo segment as a “vital partner in delivering essential goods since COVID-19 pandemic.”
PAL reported that its consolidated operating expenses were down 23.3% last year, mainly due to all of the expenses that it wasn’t incurring while its planes were grounded for lack of paying customers: P6.11 billion less spent on aircraft services, P2.4 billion less spent on aircraft maintenance, and P1.0 billion less spent on passenger services.
PAL even managed to spend less in fuel last year than in 2020, when customers were under far greater restrictions on both domestic and international travel.
In terms of net cash flows from operations, PAL reported a P3.9 billion loss, as compared to the P1 billion gain it booked in 2020 and the P27 billion gain it booked in 2019.
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The key here is that this number isn’t indicative in any way of PAL’s ability to run an airline.
PAL’s FY21 net income number is boosted by P64.39 billion in what it describes as “gain from debt settlement and condonation of debt”, which, as you can guess, is a one-off paper gain that has pretty much nothing to do with operations.
All of the parts of the report that seem like bright spots actually look to me like red flags in disguise.
For example, PAL’s operating expenses were way lower last year! That’s great. But they were lower because it doesn’t cost very much to maintain crowded planes and facilitate a fraction of the flights.
Or how about PAL’s optimism about its air cargo segment’s performance!
That’s pretty neat. But even PAL said it right when they mentioned that they were a “vital partner” in air cargo “since [the] COVID-19 pandemic.”
With restrictions easing, are there going to be as many emergency flights to move vaccines and medical supplies around the country, or in and out of the country?
How will PAL’s air cargo service compete against the existing networks of air cargo service providers that have been doing this for years, now that the margin-building impact of “emergency” has faded as the fear associated with COVID has faded?
Yes, PAL went bankrupt and was saved (again) by Lucio Tan, and as part of that bankruptcy process, it was able to negotiate a great deal of debt relief.
Some of that relief is in the form of temporary changes to its aircraft leases that allow it to only pay for “time in the air”.
What happens in a year from now when those temporary protections expire, and PAL is forced to pay the full leases for the planes -- even if they’re just sitting in the hangar?
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Merkado Barkada's opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.
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