Philippine Airlines: Buckle up for a turbulent flight

Research evidence excerpt

J P M O R G A N

Asia Pacific Credit Research

11 August 2026

Philippine Airlines

Underweight

PALPM

Buckle up for a turbulent flight

Philippine Airlines (PAL) is a leading full-service carrier in what has effectively

become a duopolistic Philippine aviation market. While the Chapter 11 restructuring

in 2021 reset the balance sheet, backstopped by meaningful sponsor support, which

has helped to improve operating metrics, the near-term outlook is pressured by a fueldriven margin squeeze and the absence of fuel hedging. Liquidity appears adequate

to weather the temporary disruption supported by USD bond proceeds and other

undrawn facilities, which limits tail risks. However, valuations/technicals look

broadly fair and may not fully reflect near-term earnings downside. We initiate with

an Underweight recommendation on the issuer and the PALPM '31s (99.2 offer,

z+382bps, 7.96% ytw) on earnings volatility and wait for a more attractive entry

point.

Duopoly positioning in a slot-constrained market: PAL remains one of two

dominant incumbents in Philippine aviation, with solid domestic positioning

and a differentiated international footprint (notably North America), where

demand can be relatively stickier. That said, incremental capacity from new

airport infrastructure should improve slot availability in the coming years and

could trigger more aggressive capacity adds to defend/grow market share—

raising the risk of higher capex and weaker pricing power and margin pressures

as the market transitions from supply-constrained to more contestable.

Restructuring materially reset the balance sheet (with tangible sponsor

support) and improved operating metrics: PAL’s 2021 Chapter 11 process

took out >US$2bn of obligations, right-sized the company’s fleet and reset

leases. More importantly, the sponsor injected support (including DIP funding

and equity contributions), helping stabilize liquidity and underpin the postreorg recovery. Since then, utilization has been strong (>12hrs) and RASK–

CASK has stayed positive (though narrowing), consistent with improved

underlying unit economics versus the pre-restructuring profile.

…