Cebu Air to Raise $500 Million as It Cuts Fleet and Network

FILE PHOTO: This photo taken on April 19, 2020 shows passenger planes from carrier Cebu Pacific parked on the tarmac of Manila's international airport as air travel to and from the Philippines has been suspended after the government implemented a lockdown in its efforts to contain the spread of COVID-19 disease in the country. (Photo: STR/AFP via Getty Images)

By Cecilia Yap

Philippine budget carrier Cebu Air Inc. plans to raise $500 million by selling preferred shares and bonds to enable it to cope with the impact of the pandemic.

The airline will use the proceeds from about $250 million in convertible preferred share issuance and $250 million in private placement of convertible bonds to strengthen its balance sheet, it said in a statement. First-half revenue at the airline controlled by the family of John Gokongwei plunged 61% from a year ago to 17.3 billion pesos ($357.5 million) and the company said it’s currently operating only about 15% of its flights from pre-Covid period.

The abrupt drop in passenger traffic “casts uncertainty over the near term prospects of the company,” thus the need to raise funds, Cebu Air said. A business transformation that involves trimming down its fleet and network while improving operations through digitization and other enhancements is under way, it said, without providing more details.

While the details of the shares and debt offers are being finalized, both issues are expected to have the same conversion price, which will be set within a range of 38 pesos and 45 pesos, it said. This represents a 21% conversion premium over the stock’s 30-day volume weighted average price from Aug. 26.

Cebu Air will seek shareholders’ approval to increase its authorized capital and create a new class of convertible preferred shares. Shares of the airline have fallen 58% this year, more than twice the benchmark Philippine stock index’s 25% drop.

© 2020 Bloomberg L.P.