Court-ordered rehabilitation likely option for debt-laden THAI

After years of heavy losses, Thailand’s struggling national airline is making headlines with its last-ditch attempt to survive a spiralling financial crisis fuelled by the global coronavirus pandemic.

Thai Airways International (THAI), which began operating 60 years ago this month in 1960, is desperately seeking a Bt54-billion short-term loan to finance operating costs while it undergoes rehabilitation. To obtain the loan, the airline requires the backing of a guarantee from the Finance Ministry, which holds 51 per cent of THAI’s shares.

The rehabilitation plan for the flag carrier was approved late last month by the State Enterprise Policy Committee, which is headed by Prime Minister Prayut Chan-o-cha. The plan was then submitted to the Transport Ministry, but has yet to be put to the Cabinet for approval.

Without government backing, the airline risks going bankrupt as it runs out of cash reserves. THAI has debts totalling over Bt244 billion, Bt21.7 billion of which must be paid this year, while its cash flow amounts to Bt21.6 billion.

However, the airline’s chance of receiving a cash injection to survive the financial crisis seems slim amid widespread opposition. Critics say the government will be held responsible for THAI’s massive debts if the latest rehabilitation plan fails again and the carrier goes bankrupt.

The Cabinet, which appears reluctant to approve the loan, is split over whether the airline should get another shot at rehabilitation after the previous recovery plan launched five years ago failed miserably. According to sources familiar with the matter, many Cabinet members back the idea that THAI should be left to file for bankruptcy.

Finance Minister Uttama Savanayana said on Thursday that filing for bankruptcy was an option for THAI’s rehabilitation if the Cabinet failed to endorse the airline’s existing recovery plan.

Thursday’s meeting of Cabinet members overseeing THAI, minus Uttama, came up with two options for the Cabinet to decide next Tuesday, a source told Isra News Agency. One of those options calls for THAI to enter rehabilitation through the Central Bankruptcy Court. The other is for the Finance Ministry to reduce its shareholding to below 50 per cent, depriving THAI of its status as a state enterprise.

Prayut on Wednesday declined to rule out the possibility of THAI seeking bankruptcy so it can qualify to enter a rehabilitation programme. “If no other methods work, resorting to the [bankruptcy] law would be unavoidable,” he said.

In 2015, General Prayut’s post-coup government saved the national carrier from going bankrupt by giving the green light to a rehab plan. At that time, he said THAI would have to cut expenses, boost revenue and drop unprofitable routes, in addition to selling surplus planes. Last week, he noted that THAI had failed to recover under that plan.

On Thursday, THAI’s labour union, which earlier opposed restructuring and privatising the airline, agreed that filing for bankruptcy might be inevitable to ensure its survival. “The government is in a better position to judge than we are. Whatever the prime minister and government see as good for us, we must accept,” said the union’s president, Nares Peung-yaem.

‘No action plan’

THAI’s proposed recovery plan contains six major strategies for improvement, covering the airline’s route network, fleet, commercial matters, operations and costs, organisation, and business portfolio. The plan calls for reorganisation, downsizing, reduction of its fleet, flights and personnel costs, as well as cutting the Finance Ministry’s shareholding to below 50 per cent.

SET-listed THAI would also be transformed into a holding company, with its major divisions split into separate companies – catering, air cargo, ground services, aircraft maintenance, and the low-cost Thai Smile airline.

However, Transport Minister Saksayam Chidchob declared the rehab proposal lacked a clear plan of action, including details on how to make money, deal with its high costs, and manage its massive debts. He said it also failed to suggest solutions to the 23 issues THAI described as its “weaknesses”.

Meanwhile, the Bt54 billion loan would only stabilise THAI’s liquidity; to survive the airline would need another estimated Bt70 billion to repay its maturing corporate bonds, and Bt83 billion as capital.

Massive losses

The flag carrier has suffered annual losses exceeding Bt10 billion in seven out of the past 10 years, accumulating total losses of Bt46.6 billion over the past decade.

THAI workers blame the airline’s huge losses on unusually high salaries for senior executives, frequent purchases of planes, unnecessary hiring of advisers, and corruption leading to inflated prices. Labour union leaders also said its “unfair” deal with ticketing agents costs the airline up to Bt18 billion in lost revenue each year.

Critics also point out that THAI has too many employees – numbering over 21,000 – and they suggest up to 20 per cent of the current workforce could be reduced.

The spread of Covid-19 has made things worse for the carrier. Like other airlines around the world, THAI has grounded almost all of its fleet after countries imposed travel bans to prevent the disease from spreading.

According to the International Air Transport Association (IATA), the global aviation industry could lose hundreds of billions of dollars in revenue due to Covid-19.

Possible solutions

Observers and politicians have suggested a range of different routes THAI could use to escape its financial crisis.

Former finance minister Thirachai Phuvanatnaranubala said there are two viable options for the airline – privatisation or nationalisation. He suggested that after its transformation, the airline should focus on domestic routes.

Tycoon-turned-politician Thanathorn Juangroongruangkit said a better option than guaranteeing THAI’s loan and risking default is to let the airline go bankrupt. Also, he suggests the airline be privatised and Thai skies be opened to encourage competition. Though he disagrees with nationalisation, he said it would “still be better than what the government is doing now”.

Korn Chatikavanij, former finance minister and Democrat Party politician who is now leader of the new Kla Party, said the Bt54-billion loan injection would not last long as the airline had monthly expenditures of more than Bt10 billion. He agreed with rehabilitating THAI on condition that it undergo major changes and its shareholders and existing creditors share the losses.

Banyong Pongpanich, chairman of Phatra Capital Plc, agreed that the government should help save the national airline by steering it into legal bankruptcy, so it is required by court to present a rehab plan before it can resume business.

Democrat Party deputy leader Samart Ratchapolsitte said he expects THAI to file a case with the Central Bankruptcy Court seeking rehabilitation if it fails to get a Cabinet approval for the Finance Ministry to guarantee the huge short-term loan it needs.

In a Facebook post on Tuesday, Samart pointed out that doing so would allow the airline to continue operating, suspend debt repayments and negotiate debt settlements with its creditors.

However, he also warned that this option had its disadvantages, in that rehabilitation would take a very long time. The 74 saving cooperatives that have invested a combined Bt38 billion in the airline’s bonds would have a liquidity problem, and the corporate bond market’s credibility would be questioned when THAI is unable to repay its bonds.

Samart also warned that if the airline’s court-ordered rehabilitation plan failed, creditors would be left with no choice but to seek a court order for its bankruptcy and seizure of its assets for debt repayment.

By ThaiPBS World’s Economic Desk


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