Cebu Pacific Strategically Uses Paid-In Capital to Erase PHP16.27 Billion Deficit

Cebu Pacific Air (5J, Manila Ninoy Aquino International) is taking significant financial steps to enhance its balance sheet by using its paid-in capital to eliminate a PHP16.27 billion (USD278 million) deficit. This strategic move comes shortly after the airline committed to a substantial fleet expansion, involving the acquisition of over 100 new aircraft.

The decision to restructure the airline’s equity was detailed in a filing with the Philippine Stock Exchange on July 19, which did not specify the reasoning behind the reorganization. However, Manila’s Daily Inquirer suggests that the motive is to prepare the airline’s finances for upcoming expenditures, particularly the debt it expects to incur following its recent agreement to purchase 102 Airbus A320-200Ns, with an option for 50 more aircraft in the A320N family.

According to the filing, the deficit will be offset against an additional paid-in capital amounting to PHP20.658 billion (USD354 million) recorded in the company’s audited financial statements as of December 31, 2023. This capital injection is derived from PHP9.232 billion (USD158.2 million) in additional paid-in capital from common shares and PHP11.426 billion (USD195.8 million) from preferred shares.

The restructuring will effectively zero out the airline’s deficit as of the end of 2023, leaving it with PHP4.39 billion (USD75.2 million) in surplus paid-in capital. Notably, this financial maneuver does not alter the par value of Cebu Pacific’s shares, nor does it necessitate any new paid-in capital or change the number of issued, outstanding, or listed shares.

Cebu Pacific, known for its extensive route network to 53 airports in 15 countries, operates a diverse fleet which includes nineteen A320-200s, nineteen A320-200Ns, seven A321-200s, fifteen A321-200NXs, one A330-300, and eight A330-900Ns. This restructuring provides the airline with a cleaner slate to embark on its ambitious expansion plan, enhancing its capacity to manage new financial commitments and growth opportunities effectively.

This strategic financial adjustment is indicative of Cebu Pacific’s proactive approach to managing its capital structure, ensuring it remains competitive and financially robust in the dynamic aviation market.

Sources: AirGuide Business airguide.info, bing.com, ch-aviation.com