TG: A 60-year dream turns into a nightmare

BANGKOK, 21 May 2020: Thai International confirmed Tuesday it would file for protection under chapter 3/1 of Thailand’s bankruptcy law while it goes through a court-supervised reform plan.

The Thailand government will reduce its controlling 51% stake in the airline as part of a massive financial restructuring while the cash-strapped airline is under the court’s bankruptcy protection. The airline has made repeated annual financial losses, and its financial health has only got more perilous since the global Covid-19 pandemic.

Photo Credit: Andrew J Wood

“We have decided to petition for restructuring and not let Thai Airways go bankrupt. The airline will continue to operate”; Prime Minister Prayuth Chan-ocha told reporters earlier in the week.

“The Cabinet agreed the government would reduce its holding in Thai Airways to under 50%, ending the airline’s status as a state-enterprise”; said transport minister Saksayam Chidchob. Although insiders believe other branches of the government will hold small blocks of shares that will still take the government’s stake to more than 50%. The unions have largely supported news of the restructure but are concerned about the reduced shareholding by the state, as they fear a further reduction will be disadvantageous for their members’; state benefits.

After huge losses in 2019 and a 90% drop in its share price since 1999, the government now plans to offload stock and distance itself. The losses sustained by the carrier have been staggering. In 2019 alone, it lost THB12 billion.

With disastrous future forecasts looming there is an urgency for the government to distance itself from the airline, it is after-all the airline’s financial backer of last resort. They cannot be happy with this year’s projected losses for the first six months of a catastrophic THB18 billion.

The airline faced a cash crisis this month and had to conserve cash flow in other to meet its payroll commitments.

Of course, Thailand’s Ministry of Finance 51% stake kept the airline going through years of losses. However, with debts of THB92 billion mostly to the Thai bond market, the Bangkok based credit rating agency downgraded the airline’s bonds from A to a BBB rating.

The stock market also set a negative tone on Monday. THAI’s already eroded share price fell and later rose. THAI’s share price last year on 20 June 2019 was 10.90 compared to close of business today 20 May 2020 of 5.40, dropping almost half in 11 months.

Its restructuring will be handled through the Central Bankruptcy Court, allowing the airline to operate as usual and retain staff for the time being.

Part of the restructuring plan will see a shrinking of its fleet over time (currently 74 aircraft) and leased aircraft being returned, which may lead to a future downsizing of the workforce, some experts saying by between 5,000 to 10,000 from around 23,000 at present.

Even as the national flag carrier strives to come up with a blueprint for
financial recovery, the airline received further bad news. Thaiger.com alleged that Airbus is calling in its debts on 30 aircraft rented by the airline. Thailand’s deputy transport minister says the company’s debts were checked 15 May, when documents showed that Airbus was trying to collect debts on the rental as the due date draws near.

The government has supported the beleaguered carrier for five years, but it has failed to solve its financial issues, so the bankruptcy procedure is now the best option, according to the deputy minister, who says after the Finance Ministry sells its majority stake, the company will no longer be a state enterprise and will be easier to handle. The recovery plan must also be filed with the US bankruptcy court under Chapter 11 provisions to prevent American creditors from seizing all the planes or collecting the airline’s assets.

Thaiger.com reported that 53 Airbus aircraft are on loan to Thai
Airways and comprise of:

  • 6 Airbus A380-800s
  • 12 A350-900s
  • 15 A330-300s
  • 16 A320-200s

For now, its few assets are protected from creditor demands although it is mulling whether it will need to seek bankruptcy protection not just in the US but also elsewhere such as the UK and Germany.

Limited domestic flights have restarted in Thailand, but international
services are still grounded until the end of June due to travel bans
linked the Covid-19 outbreak.

The restructuring effectively means that from now on, Thai Airways is flying solo (pun intended), without government support and will have to adapt to commercial realities.

This crisis promises a return to a less nationalistic and more globally inspired world; we are also witnessing governments reassessing issues to do with national security.

It is not at all clear what sort of market Thai Airways will be flying back into, assuming that is the company manages to complete a successful and sustainable transformation.

About the author:
A professional hotelier, Skalleague and travel writer Andrew Wood has more than 35 years of hospitality and travel experience. A hotel graduate of Napier University, Edinburgh, he is a regular guest lecturer at various universities in Thailand including Assumption University’s Hospitality School and the Japan Hotel School in Tokyo. He is currently president of Skal Bangkok and a VP of both Skal Thailand and Skal Asia.

 

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