BANGKOK – Thai Airways International (THAI) is headed for bankruptcy court to pave the way for a much-needed rehabilitation for the octogenarian, near moribund national carrier, which in its glory days operated under the smug “Smooth as Silk” logo.
Thai Prime Minister Prayut Chan-ocha’s Cabinet approved the plan on Tuesday (May 19) after weeks of speculation his government might offer a state bailout of the coronavirus grounded airline.
“We will let THAI go under Bankruptcy Court protection and the court will oversee a rehabilitation plan and will set up a new management team to carry out the rehabilitation,” Prayut told media.
At the same time, the former army commander insisted that his government would not allow THAI to go bankrupt to protect the jobs of the airline’s 22,000 plus employees.
A few weeks ago, it looked as if Prayut aimed to steer THAI away from the bankruptcy route by allowing the Finance Ministry (which owns 51% of the airline) to guarantee a 54 billion baht (US$1.7 billion) loan on a vow it would restructure and turn around its money-losing ways.
THAI reported heavy consecutive losses between 2017-2019 and is heading for an at least 18 billion baht ($564 million) loss in the first half of 2020 thanks to the Covid-19 pandemic that has closed the country to international flights, with the ban expected to be in place until at least June 30.
Given it’s past loss-making performance, Prayut’s earlier bailout plan didn’t go down well, sparking criticism among politicians, businessmen and the general public who have grown weary of the airline’s corruption scandals, union problems and reports of “vested interests” exploiting the national carrier’s once prestigious services.
“Just a few weeks ago they were thinking about throwing good money after bad, without asking for reforms in return, with a weak warning from Prime Minister Prayut that this is the last time we do this,” said Korn Chatikavanij, the leader of the newly formed Kla Party and a former finance minister.
“They are being forced to make a decision on THAI because of the urgency and the desperate situation, but without the financial dire straits that THAI is in, I don’t think this is an issue they would have liked to address,” Korn said.
THAI’s finances have been dire for a decade, arguably since 2008 when the carrier reported its first loss since being launched in 1960 as a joint venture with Scandinavian Airlines (SAS). SAS was bought out in 1977, when THAI became a state-owned enterprise with 51% public ownership.
“It used to be one of the best airlines in the world; very efficient, properly managed, someone in charge,” said Luzi Matzig, a 50-year veteran to Thailand’s tourism scene and current director of Asia Trails Company and VIP Jets Ltd. “The problem with THAI is no one is really in charge anymore.”
Another problem might be that too many people are in charge and not enough of them know much about the aviation industry, critics say.
As a state enterprise, THAI has been notoriously prone to political interference, with the Transport Ministry and Air Force traditionally playing an important role in appointing the carrier’s top management and board of directors. The existing board, for instance, included three Air Chief Marshals, and five civilians.
“Air Forces never have to make a profit, so Air Force people don’t worry about losing money,” Matzig quipped. THAI notched up losses of 2.11 billion baht ($65.9 million) in 2017, 11.6 billion ($363.8 million) in 2018, 12 billion ($376.2 million) in 2019 and 18 billion ($564.4 million) in the first half of fiscal year 2020 (October – March), according to Stock Exchange of Thailand (SET) data.
Last year’s losses accrued despite a stellar year for Thailand’s tourism industry, with the kingdom attracting some 40 million international tourists.
“Last year every other airline made money except for THAI, which had a loss of 12 billion baht, and that was before the Covid crisis,” said Banyong Pongpanich, chairman of the executive committee at Kiatnakin Phatra Financial Group and Thailand’s leading privatization expert.
Banyong supports THAI’s filing for bankruptcy as the best means to stave off creditors and implement a rehabilitation plan.
Under bankruptcy protection, the airline can continue to operate, but is not obliged to meet all its debt obligations, which currently amount to 245 billion baht ($7.7 billion), making THAI the most indebted of Thailand 58 state-owned enterprises (SOEs).
Although Thailand’s Bankruptcy Court will oversee the rehabilitation process and appoint a new management and board, it will presumably need to cooperate closely with the airline’s main creditors to get their approvals on debt rescheduling.
“The creditors will have to reinvest in THAI, and this will force THAI to behave more like a private sector company,” Banyong told Thai TV.
Although partially listed on the SET, THAI is still plagued by some “public sector” image problems. Thailand and THAI are no strangers to corruption scandals.
Thailand ranked 101 in last year’s Transparency International 2019 Corruption Perception Index, below its Southeast Asian peers Singapore (4), Brunei (35), Malaysia (51), Indonesia (85) and Vietnam (96), but above the Philippines, Myanmar, Laos and Cambodia.
In January, 2017, Britain’s Serious Fraud Office, revealed after a four year investigation that Rolls Royce had paid bribes to “agents of the Thai state and employees to Thai Airways” to secure sales for its T800 engine sales between 1991 to 2005. To date, the Thai government has yet to follow up on the investigation, analysts say.
THAI purchased two gas-guzzling A340-500 aircrafts in the early 2000s in what former THAI President Piyavasti Amranand described as political meddling by the then-ruling Thai Rak Thai Party. The aircraft, bought to handle non-stop flights between Bangkok and New York, have since been decommissioned but are unsold.
While THAI’s challenges are outstanding, they are not unusual among Thailand’s 58 SOEs whose combined budget is greater than the 2020 national budget of 3.2 trillion baht ($100 billion).
There are hopes that THAI’s woes may lead to a revival of plans to reform the entire SOE system to make it more transparent and efficient at a time when Thailand needs to cut all the fat it can. The economy is expected to contract 5-6% this year due to the Covid-19 crisis.
“Already there are questions being asked over whether the debate over how to proceed with THAI should also be asked in regards to other state enterprises, which have been moribund at best,” Korn said. “But whether it will lead to action by this government, I doubt it.”