State airline is to use the bankruptcy procedures as part of a rehabilitation plan being considered by the Thai government. The cabinet made the critical decision on Tuesday. It comes as the strategic importance of a national carrier has been emphasised by the Covid 19 crisis. The main union has expressed support for the use of bankruptcy laws but vehemently opposes any move by the government to reduce its ownership of the carrier.

The Thai cabinet acceded to a plan to restructure the state airline on Tuesday which is believed to include plans to use the country’s bankruptcy laws to free the state enterprise from crippling debt. On Monday, the company’s unions came out in support of this move but warned against any dilution of the state’s shareholding in Thailand’s flag carrier. They will be disappointed. Also agreed today was the sale of 3% of the state’s shareholding to the Vayupak Fund which already owns a 15% stake. The move significantly reduces the state’s shareholding in the ailing airline below 50%.

The Thai Prime Minister announced the decision made by the cabinet today as it gave its approval to a rehabilitation plan for the state airline, Thai Airways. This will see the airline petition the Bankruptcy Court for protection as it seeks to negotiate a survival plan. Yesterday, unions supported this aspect of the package but vowed to oppose plans for the government to dilute its ownership of the airline below 50% which may signal an end to state support. The PM today signalled that there would be no further state aid for the carrier.

Thailand’s prime minister confirmed on Monday that Thai Airways may apply to the Central Bankruptcy Court for protection under the Bankruptcy Act as the company seeks to work out a rehabilitation and survival plan.

‘It was the best course to help the troubled airline back onto its feet. Under the rehabilitation plan, Thai Airways will not receive financial assistance from the government and its 20,000 member staff will not be laid off. It was a difficult decision but it is in the national and public interest. With professional management, it will regain its strength. Staff will keep their jobs and it will be restructured. The court will decide the details,’ Prime Minister Prayut Chan ocha said.

Key committee had recommended the move

On Monday, Thai government spokeswoman Narumon Pinyosinwat told reporters that a key government committee had agreed that a rehabilitation programme should be implemented in respect of the state airline Thai Airways.

This means that the airline will be restructured through a Bankruptcy court process that on Monday also drew the support of the Thai Airways Unions. 

However, despite the assurance of the prime minister that the jobs of the 20,000 people employed by the airline are safe, this is not guaranteed for the future.

The matter was discussed at length by the Thai cabinet on Tuesday.

It effectively means that, from now on, Thai Airways is flying solo without government support and will have to adapt to commercial realities.

Airline will not resume commercial flights until July

The timing of the move to tackle the problem of Thai Airways is interesting as the carrier announced also on Monday that it would not be resuming normal flight operations until July 1st at the earliest.

Over the weekend, Thailand’s Civil Aviation Authority extended its ban on all inward passenger flights to the kingdom. 

On Monday, a statement from the company referred to this but emphasised that it was examining the situation in countries internationally and working on a new flight schedule.

Covid 19 crisis has highlighted the need for state carriers throughout the world and their importance

Ironically, the Covid 19 crisis has seen national governments in other countries more at ease at providing state support to loss-making national carriers. 

This crisis, which promises a return to a less globalist and free market-orientated world, is also witnessing governments reassessing issues to do with national security.

During the Covid 19 emergency, Thailand’s state airline has played a critical role in assisting in flights handling agricultural products of strategic importance to the country’s agricultural economy. 

It has also been operating ongoing repatriation flight for Thai nationals stranded abroad.

Huge loss in 2019 and 90% drop in its share price since 1999 as the government now delinks itself

Despite all this, the losses sustained by the carrier have been staggering.

In 2019 alone, it lost ฿12 billion and since its peak in 1999 the share value of the carrier has plummeted by over 90%.

The urgency of the government delinking itself from the airline as its financial backer of last resort can be seen from this year’s projected losses for the first six months which are suggested to be in the order of ฿18 billion.

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

Of course, what kept the airline flying for so long has been that it was majority-owned by Thailand’s Ministry of Finance with over 51% of its shares.

Firm has debts of ฿92 billion mostly to the Thai bond market where it had a grade A rating

It has also benefited from Thailand’s bond market which has advanced the failing airline nearly ฿72 billion or nearly 78% of its outstanding debt according to the latest figures to date from Bloomberg.

Despite its mounting losses and its stubborn insistence on highly-priced fares for a shrinking premium market, the rating on these bonds, which were essentially unsecured, was given an A by Thailand’s Tris Ratings company in Bangkok.

This rating company has an established reputation when it comes to Thailand’s debt markets and is 49% owned by the worldwide agency, S&P Global Ratings.

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

The previously competitive marketplace with essentially open skies up to the Covid 19 catastrophe, will have changed again. 

Reports of bankruptcy court procedures gained footing last week and support of the Finance minister

This week, as talk of restructuring and the use of Thailand’s bankruptcy laws gained a footing in advance of today’s cabinet decision particularly with the support of Thai Finance Minister, Uttama Savanayana, at the end of last week, the Bangkok based credit rating agency downgraded the airline’s bonds to a BBB rating.

The firm, in its commentary, said that recent moves had ‘eroded our confidence that necessary actions from the government will be taken to enable THAI to meet all of its obligations in a timely manner.’

Limited group of investors exposed

Thiti Tantikulanan of Kasikorn Bank PLC also addressed the Thai Airways speculation this week at a seminar and said that bondholders in the firm are closely watching the rehabilitation process with reports coming from the Thai government and the Transport Ministry. 

‘The impact on the overall bond market will be limited because Thai Air bonds have been mostly sold to a limited group of investors,’ he said.

However, the stock market set a negative tone on Monday. The already eroded share price in the carrier fell another 13%.

Airline’s union supports bankruptcy moves

On Monday also, the Thai Airways Union issued a blunt and robust statement on the moves to restructure and rehabilitate the failing concern.

In two parts, the unions gave solid backing to the use of bankruptcy procedures to offer the firm a new lifeline and path back to profitability.

However, unions warned strenuously that any dilution of the government’s stake would have implications for the labour rights of workers at the airline.

It also pointed out that the union’s position would be untenable if there were to be a dilution of the government’s shareholding below 50%.

It promised to fight any move to reduce the state’s control of the firm in any event and would stand firmly against it.

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