Philippine company exploring CAL investment

Philippines Airlines and one of its major shareholders, San Miguel Corporation, has proposed a multi-million-dollar investment in Cayman Airways. 

Although East End MLA Arden McLean was prevented from tabling a leaked copy of the investment proposal last Thursday, Premier McKeeva Bush spoke about it in a statement in the Legislative Assembly on Friday. He said the proposal was received by the Cayman Islands Government and passed on to the Cayman Airways Board of Directors to explore. 

“Cayman Airways is currently in discussions with Philippine Airlines to ascertain if there are ways for the two airlines to work together,” he said. “The exploration of this potential collaboration is covering a variety of areas, but includes reviewing the ability to code share, to provide aircraft operations and includes other strategic areas.” 

Mr. Bush stressed that the investment talks were ongoing and “very preliminary” and that nothing had been decided yet. 

 

Preference shares  

Cayman Airways issued a statement of its own on Friday, stating that it had been exploring the concept of selling preference shares – a type of equity security for a debt – to local investors and others. 

“This non-voting class of shares allows holders a guaranteed return, but generally does not allow for any involvement in operational or administrative functions,” the statement said. “This special class of shares would allow the airline to raise needed capital while allowing the Cayman Islands Government to maintain complete control. Should this concept become a reality, it is envisioned that many Cayman residents and Cayman companies may be able to participate.” 

The statement said San Miguel Corporation had expressed interest in purchasing preference shares in Cayman Airways and had provided a term sheet with their requests.  

“The subject term sheet is merely a starting point and currently being reviewed to determine acceptance or non-acceptance,” the statement said. “With respect to the proposed terms, there are many items which will/could change, be eliminated or simply deemed unacceptable to the airline or the Government.”  

The statement also spoke about the leak of the term sheet into the public domain and said that Cayman Airways had launched an investigation into “this apparent breach of confidentiality” and that it was considering options of legal action if the publication of the document caused reputational damage or commercial loss. 

Speaking about the term sheet in the Legislative Assembly, Mr. McLean mentioned that the investment would involve San Miguel acquiring 50 per cent of the shares in Cayman Airways, but when asked about this, Cayman Airways CEO Fabian Whorms said the investment proposal did “not specify a percentage ownership under the preferred share approach” and that those shares wouldn’t necessarily be converted to common shares. 

“The convertibility of those shares to common stock, while proposed by [San Miguel Corporation], was not proposed by CAL and it would be premature to assume that convertibility will even be a feature of the agreement, if one is reached,” Mr. Whorms said. “We therefore prefer to not comment on any potential percentage share holdings by [San Miguel Corporation], as that matter currently lacks definition.”  

In his statement to the House, Premier Bush said that the ability for the airline to issue preference shares would require approval not only from Cabinet and the Legislative Assembly, 
but also from the United Kingdom. 

 

San Miguel and PAL  

San Miguel Corporation is a major conglomerate in the Philippines. Established in 1890 as a brewery, it is now Southeast Asia’s largest publicly listed food, beverage and packaging company.  

In April 2012, San Miguel bought a 49 per cent stake in Philippines Airlines, the national flag carrier in the Philippines. The airline has survived a number of challenges in the past 15 years, including the Asian financial crisis of the late 1990s, the drop in air travel after the 9/11 terrorist attacks and going into receivership. 
Then in January 2008, the United States Federal Aviation Administration downgraded the rating for commercial air travel for all of the Philippines because its air transportation regulatory body did not fully satisfy international safety standards. That downgrade from Category 1 to Category 2 prevented Philippines Airlines from increasing its flights to the United States from 33 times per week or from switching its aging fleet to newer aircraft.  

Philippines Airlines has recently purchased six new long-haul Boeing 777-300ER aircraft, but because of the FAA downgrade, it can’t currently fly them to the United States. One possible way around that problem is if the airline undertakes a wet-lease agreement – a leasing arrangement where one airline provides an aircraft, complete crew, maintenance, and insurance to an airline – with a carrier from a country with a Category 1 rating. The Cayman Islands has a Category 1 rating.  

Mr. Whorms indicated that a possible wet lease was part of the discussions with San Miguel Corporation and Philippines Airlines. 

“This Boeing 777 matter, if possible, is going to be subject to a myriad of regulatory approvals,” he said. “We are still in the early stages of exploring what is possible with the authorities and also still assessing what is compatible with our operations and feasible for Cayman Airways.”  

 

Infrastructure  

The investment opportunities being discussed also include possible airport/runway improvements on Grand Cayman and Little Cayman, Mr. Whorms said. 

“There has been early indications that [San Miguel Corporation] would consider such investments, and possibly investments to redevelop the aerodrome in Little Cayman to accommodate aircraft in the 30-50 seat range, which could assist CAL in realising a long held objective to replace the Twin Otters with larger more comfortable and efficient aircraft,” he said.  

Speaking in the Legislative Assembly on Friday, Premier Bush said the Memorandum of Understanding he signed with the San Miguel Corporation simply stated that Cayman and San Miguel “would explore potential ways to work together”. 

“[A]nd that is exactly what we are doing,” he said. “The necessary due diligence and seeking of approvals all need to be conducted, but at this point it is suffice to say that the exploration is ongoing and I look forward to bringing more details forward if some of the ideas are commercially viable and acceptable under the [Public Management and 
Finance Law].”  

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2 COMMENTS

  1. I don’t see how lucrative for San Miguel to spend money for wet leasing in long run while they are building their 6 billion private owned airport in outskirts of Manila. Well they are too rich and sending a cent of money in Cayman Islands would reduce concentration risk in their notes to investors. Whoa..who said digging a gold is risky? They too engage in mining business.

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