Once a prosperous airline and national pride, Thai Airways International (THAI) is now struggling to clear a mountain of debt during the global aviation industry’s darkest days.
The national flag carrier submitted an 88-page rehabilitation plan to the Bankruptcy Court on March 2 as part of its move to repay Bt410 billion in debts owed to 13,133 creditors.
Famous for its “Smooth as Silk” service, the state-owned carrier earned international awards and admiration during its 60-year history, boosting the Kingdom’s global reputation.
THAI was the only Asian founding member of Star Alliance – the first global airline network and now the world’s largest – established in 1997 with Lufthansa, Air Canada, SAS and United Airlines.
However, despite an annual revenue of Bt200 billion, THAI began recording losses a little over a decade ago, which mounted into the massive 410-billion debt owed today.
Critics and analysts pointed to outrageous corruption and mismanagement of the airline, in addition to widespread favouritism and extremely generous corporate benefits.
Genesis of the crisis
Founded in March 1960 as an international airline, THAI merged with the domestic carrier Thai Airways Company in April 1988.
In the 1990s, the airline began buying numerous different aircraft for its fleet. This practice would later be blamed for its subsequent financial difficulties, as differing airframes and engines required more technicians and higher maintenance costs.
In 2008, after more than 40 years in profit, THAI recorded a loss for the first time in its history – about Bt21 billion – even though it earned over Bt200 billion that year. The airline put the blame on high fuel costs and Thailand’s political turmoil.
Last year, THAI’s losses skyrocketed to a record Bt141 billion after meagre earnings of Bt48.3 billion amid the COVID-19 pandemic. That represented a 73.8 per cent drop in revenue and a staggering 1,075 per cent jump in losses compared to a year earlier.
Over the previous decade – 2010 to 2019 – the national airline earned between Bt181.4 billion and Bt207.7 billion annually. But it still suffered seven years of losses totalling Bt76.5 billion, against a combined profit of Bt21.8 billion during three years in the black.
A Thai Airways plane model for sale at a shopping mall in Bangkok. (Photo by Mladen ANTONOV / AFP)
Failed reform attempts
Repeated attempts to introduce changes in the loss-making state enterprise were invariably cut short. Observers pointed to three core problems at THAI — ineffective leadership, inexperienced boards of directors and a coddled union.
Mismanagement influenced by corruption and political meddling was also blamed for the huge losses. THAI’s former president Piyasvasti Amranand – regarded as a true reformer – said after being abruptly dismissed by the board in May 2012 that directors and politicians frequently meddled directly with management to foster corruption in procurement. While in office, he imposed salary cuts for senior executives as part of a cost-cutting plan.
THAI duly recorded a profit of Bt15.3 billion in 2010 with Piyasvasti at the helm. The airline never achieved that level of success again. It did register profit of Bt6.5 billion in 2012 and Bt15 million in 2016, but the general trajectory was steep decline.
Last year, Piyasvasti was appointed as one of two administrators of the rehabilitation plan – the other being Chakkrit Parapuntakul, THAI vice chairman and former Finance Ministry deputy permanent secretary.
‘Culture of corruption’
Some observers claim a culture of corruption at the national airline drained its finances.
Former international crime prosecutor Wanchai Roujanavong warned that debt restructuring would open a Pandora’s box – exposing “extensive corruption that had been hidden from the public”. He gave as an example the unusually high fees THAI paid to rent aircraft – allegedly with the consent of the airline’s board.
Without the rehabilitation plan, the public would probably never know the truth “while the parasites carried on sucking the airline dry”, he said.
In August last year, a police-led investigation team set up by the Transport Ministry found that many THAI employees “became unusually rich” from aircraft procurement deals and mismanaged projects.
Catalyst for change
THAI suffered its worst year of operations after COVID-19 hit the global aviation industry in 2020. The pandemic triggered travel restrictions and plummeting demand among travellers and tourists.
Airlines all over the world were forced to suspend flights, lay off employees and plead for financial help from governments and investors. Many of them sought bankruptcy protection.
THAI did what it had done before and turned to the government for help, seeking a Finance Ministry guarantee for loans of Bt50 billion to keep its operations running.
But the situation differed this time around. With the COVID-19 crisis worsening, the government came under pressure from the public not to shoulder THAI’s financial burden again. Analysts pointed out that a Bt50-billion loan was unlikely to guarantee the airline’s recovery from heavy debts.
Thai Airways aircraft are parked on the tarmac at Suvarnabhumi Airport in Bangkok on March 25, 2020 as the airline suspended international flights due to the COVID-19 coronavirus. (Photo by Jack TAYLOR / AFP)
‘Middle path’ favoured
Denied the capital injection, the airline seemed destined for bankruptcy. But the Cabinet opted for a middle path, resolving on May 19 last year that THAI should seek rehabilitation through the Central Bankruptcy Court.
Three days later, THAI lost its status as a state enterprise after the Finance Ministry reduced its majority shareholding in the airline to 47.8 per cent.
In late May, THAI filed for business rehabilitation with the Bankruptcy Court, which accepted the filing on September 14.
The airline submitted its rehabilitation plan on March 2 and it expects court approval by July.
Moves to cut costs
The restructuring plan seeks to raise Bt50 billion in fresh capital over the next two years through new shares or borrowing – with the goal of returning to profit in 2025, according to THAI’s acting president Chansin Treenuchagron.
Meanwhile, to reduce costs, THAI plans to cut its workforce from 29,000 to 14,000-15,000 and its fleet from 102 aircraft to 86 by 2025 – reducing aircraft types from 12 to five, and engine types from nine to four. Negotiating lower rental fees for aircraft is also part of the cost-cutting plan.
THAI’s rehabilitation plan proposes no haircut on debts but seeks a waiver of unpaid interest on loans and deferment of bond repayments for six years. Also, it offers a debt-to-equity swap option for the creditors.
Scratching around for money
The ailing airline has sold property, cabin merchandise and food products for quick cash to keep its business alive. THAI now earns less than Bt1 billion a month with an estimated monthly expenditure of Bt2 billion. Pre-COVID, its average monthly revenue was Bt15 billion.
In January, THAI made Bt2.7 billion from selling shares in its subsidiary Bangkok Aviation Fuel. It also offered to sell more than 40 second-hand aircraft, five sets of aircraft engines, a land plot and a building in Bangkok, as well as leasing out some properties.
Meanwhile, THAI invited grounded passengers to experience first-class airline dining at its head-office restaurant. It also offered inflight snacks such as “pa tong ko” (fried dough) and croissants at outlets around Bangkok, drawing long queues of customers.
Last October, the airline launched its Re-life Collection fashion products made from recycled vest jackets and slide rafts. Also on sale are unused inflight items stamped with the airline’s logo, including dishes, glasses, cutlery and seat covers.
This picture taken on September 10, 2020 shows a Thai Airways flight attendant wearing a face shield as she serves customers at a pop-up air-plane-themed restaurant at the airline’s headquarters in Bangkok. (Photo by Mladen ANTONOV / AFP)
40-plus airlines bankrupt
More than 40 airlines around the world were hit by bankruptcy last year during the COVID-19 pandemic.
Many of them ceased operations or went out of business altogether – including Thailand’s low-cost carriers NokScoot and Orient Thai Airlines – while others, like THAI, are attempting to fly back from the brink.
Among well-known airlines that filed for bankruptcy and sought debt rehabilitation are Britain’s Virgin Atlantic and Thomas Cook, Italy’s Alitalia, and India’s Jet Airways.
By Thai PBS World’s Business Desk
