Thai Airways plane. Photo credit tjdarmstadt on flickr.
The day of reckoning is coming for Thai Airways. The 2nd March is the latest, and probably final, deadline for the embattled carrier to submit their debt rehabilitation plan to the Thai Central Bankruptcy Court. If they fail to submit a plan by then, without a further extension, the airline will be bankrupt.
Then, probably in May, the court will assemble Thai Airways’ creditors to vote on the plan. If a majority agree to it the court will appoint administrators and Thai Aiways will operate under the plan. If a majority vote against the plan, the airline will be declared bankrupt.
Last May Thai Airways filed for business rehabilitation with 332.2 billion Baht (approx. £8.2 billion, $10.6 billion) of liabilities at the end of June.
Thai Airways is not only the national flag carrier in Thailand, but also a significant employer with around 20,000 employees. With 24 million passengers a year, it is also a key income generator for associated companies and the national economy as a whole, tourism generated almost 20% of GDP prior to the pandemic.
Thai has been struggling since around 2012 and 2020 was always going to be a challenge for the company. Then the pandemic hit global travel and the vast majority of operations closed down resulting in virtually no income since last March. It is believed that the airline has been losing around 1 billion baht (approx £23.6 million / US$33.3 million) a month since the lockdown began.
The chances of Thai Airways surviving seems to be in the balance.
Some commentators have suggested that Thai has failed to find sufficient support for the measures and that the company is now hoping that four subsidiaries, Thai catering, Thai Cargo, Thai Ground Services and Thai Technical, will be able to survive with the airline itself, along with Thai Smile, Thai Crew Centre and Thai Flight Training Centre all ceasing trading.
Elsewhere there is more confidence that the airline can survive with the suggestion that the majority of aircraft lessors, major creditors, are in favour of the plan. It is believed that fifteen lessors have exposure to Thai, to the tune of 40 aircraft.
Another suggestion is that Thai is just too important to the government to allow it to fail. Without Thai there would be a massive hole in the passenger numbers flying into and around the country, which would only be able to be filled by foreign carriers who would need to be confident that they would be cost effective.
On 24th February, Thai Airways International reported a record loss for 2020 (Bloomberg), the largest ever for a Thai company according to data compiled by the Stock Exchange of Thailand.
Revenue slumped almost 74% to just 48.3 billion baht (approx £1.1 billion / US$1.6 billion) resulting in a loss of 141.2 billion baht (approx £33 billion / US$4.69 billion). The losses included one-off expenses of almost 92 billion baht ( approx £2.16 billion / US$3 billion) from an employee separation plan, impairment losses on aircraft, right-of-use assets and aircraft spare parts.
Even if Thai manages to survive the airline is likely to be considerably smaller than pre-pandemic. This has resulted in an already bloated workforce becoming increasing unsustainable.
Last October Thai announced that almost 5,000 employees had signed up for the early retirement programme. Around 80% of employees had agreed to pay cuts or unpaid leave to help with the airlines finances.
Part of the Thai Airways short-term survival plan and long-term restructuring includes selling as many assets as feasible.
Last year the airline put more than 400 products from the airlines warehouse, including branded glasses, cups, napkins and plates which all sold out within minutes. The airlines has also sold in-flight coffee, mineral water, juice and seasonings at discounted rates.
At the same time as announcing the pilot lay-offs Thai also announced that the grounding of 3 types of aircraft, Airbus A330-300, A380, and Boeing 747, from their fleet.
Thai already has 42 planes listed for sale:
- 10 Boeing 747’s
- 2 Airbus A380’s
- 18 Boeing 777’s
- 9 Airbus A340’s
- 1 Airbus A300
- 2 Boeing 737’s
The website where the planes are listed includes the following statement “This announcement is a part of a market survey to find potential buyers for the items listed in accordance with THAI’s business plan under the reorganization proceeding. The actual sale will take place under the business reorganization plan and would require approvals of relevant stakeholders and the Bankruptcy Court.”
New Aircraft Purchases
In what seems to be an unbelievable development, Thai are rumoured to be planning on purchasing between 20 and 30 new aircraft in 2025, when it expects airline travel to have recovered to pre-pandemic levels. The amount this would cost? Around $3 billion.
“The plan to buy new planes would be submitted to the Central Bankruptcy Court on March 2 along with THAI’s business rehabilitation plan, subject to approval by its creditors.”Unnamed source via The Nation Thailand
On one hand it would be a sensible approach. Much of the airlines fleet is based around older, fuel inefficient aircraft that do not meet the needs of the airline moving forward. The reported plan would be to purchase modern, fuel efficient aircraft. It is thought that this would help to demonstrate to creditors that the airline has a long-term plan for success.
However the airline has been accused as being irresponsible with its spending in the past and any commitment to such expenditure would be unlikely to gain much, if any, approval from creditors and future investors.
The Acting President of Thai Airways has been reported in The Nation Thailand as stating that these rumours are not true and that a rental option would be explored initially if there was a future requirement for new aircraft.
“There is a rumour that THAI would submit a plan to buy new planes along with the company’s business rehabilitation plan to the Central Bankruptcy Court on March 2, but this is not true.”
“Before entering the rehabilitation process, THAI already had a plan to decommission old planes that required high maintenance cost and had low fuel efficiency.”
“In the next five years, the company aims to downsize its air fleet as well as reduce maintenance cost to only necessary level, as well as find new revenue sources and increase administration efficiency in accordance with the current market demand.”
“If the demand for air travel increases due to recovering global economy, the company’s strategic committee would carefully estimate market trends both in mid- and long-term, and procure additional planes based on cost-effectiveness to make sure that the company does not lose its competitive advantage in the industry.”Chansin Treenuchagron, Acting President Thai Aiways International Plc via The Nation Thailand
The financial issues have not been helped by allegations of corruption within the airline.
The allegations include irregularities including air ticket sales, overtime payments to technicians and the purchase of Airbus planes in 2003-2004 and are said to have contributed to the financial issues now being faced as well as lack of confidence in corporate governance.
Last week we also reported on the incredible allegations that some Thai Airways employees had faked their own deaths to receive funeral allowances and many had even continued to work for the airline.
Flyingdog Travel Comment
I have flown on Thai Airways both long and short haul and it quickly became my first choice when travelling to Thailand.
A tightening of the purse strings became obvious onboard last year (just before lockdown). On the A380 lowerdeck in economy there is a middle aisle seat with no seat in front, making it an extra legroom seat. I have always tried to get this seat when booking and managed to secure it, for no cost, on the outbound flight in February. At the start of March however on our return the seat was not available to book. When we boarded the plane it was obvious why. This seat, and a number of others on the front row of each section, now had different seat covers stating that they were bookable seats for an additional fee.
I have always found the crew to be friendly, helpful and efficient although they do tend to disappear in the middle of the night – I don’t sleep on flights so it is very noticeable to me.
It would be a real shame to see Thai disappear from the skies and would probably drive direct flight prices up from many countries. Thai seems to be hanging on by its fingernails so we wait with baited breath to see if it can survive.
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