The clouds are darkening for Thai Airways as it attempts to fly through the storm caused by the Covid 19 pandemic, dwindling cash liquidity and its decision to file for bankruptcy in May. There is also an internal investigation within the company overseen by a former police commissioner into the firm’s passenger receipts for 2019. The company’s top management, including former heavyweights brought onto the board for this battle, are working hard to get the approval of the Bankruptcy Court in mid-August for a rehabilitation process for the airline to begin. For now, its scheduled flights are grounded until August 1st at the earliest as it conserves cash by not flying at a time when airlines worldwide are losing money in the skies.
As an A-team at board level puts together a survival plan based on reduced routes and lower numbers of aircraft flying, Thai Airways is getting ready to present its case to the Central Bankruptcy Court in Bangkok on August 18th. However, the struggling airline finds itself flying against aviation industry headwinds created by the Covid 19 crisis which has made airline carriers across the world deeply unprofitable. There are also needling concerns about the ability of the firm to reach an agreement with creditors, outstanding refunds due to customers and an internal enquiry being overseen by a former police commissioner into passenger revenues generated in 2019 after management at the airline revealed that 25.4 million passengers had been flown by the airline netting marginally more than ฿6,000 per ticket. Then, there is the fact that the airline’s fixed costs are reported to be still running at ฿5 to ฿6 billion per month although efforts are being made to manage the situation with limited liquidity and the planes grounded.
Thailand’s troubled state airline, which filed for bankruptcy at the end of May, flew 250 passengers home from the UK and Ireland on Sunday last arriving safely in Bangkok on Monday.
The passengers arrived on Cargo flight TG917 from London. The airlift was hailed by Squadron Leader Anirut Saengrit of the Thai Airways Operation Control Centre in Bangkok as a success. It was the second mission in recent weeks to bring Thai nationals back home from the region.
Struggling to meet commitments with tight liquidity, a grounded airline now without recourse to borrowing
It comes at a time when Thai Airways is struggling to meet its most basic financial commitments with reported liquidity in the airline being just enough to get it to the end of the month.
Acting President, Chakkrit Parapuntakul, on Friday explained that this is why staff across the organisation have had to take salary cuts over three months as the airline attempts to negotiate its future with its creditors.
The senior executive pointed out that Thai Airways cannot borrow money until a rehabilitation plan has been hammered out with creditors and then subsequently approved by all parties including the court.
Acting President was upbeat with staff last Friday
In the televised meeting with staff on Friday from which the media was excluded, the acting president of the company said that the airline was hoping to minimise the number of staff layoffs and possibly train staff for other functions in a newly reorganised business approach.
He said that Thai Airways, from July, will be introducing a standard pricing system and moving to sell its more competitive fares directly online bypassing the elaborate network of agents that it had used it in the past.
This would also be an essential part of the plan being developed to fly Thai Airways back to profitability.
However, he highlighted that pay cuts had to be implemented as the firm was trying to preserve liquidity until it works out its rehabilitation blueprint.
Customers asked not to be panicked by notice from the court linked with prepayment for flights
On Tuesday, the airline issued a statement addressed to customers who had received official notifications from the Bankruptcy Court in Bangkok concerning monies due to them by the airline.
It is reported that Thai Airways may owe up to ฿24 billion in amounts due to customers who have already booked and paid for flights linked with its normal trade.
Other airlines worldwide have similar amounts due to the unprecedented effect of this Covid 19 pandemic and the nature of air travel ticketing.
However, with Thai Airways, due to the company filing for bankruptcy, it is not able to issue such refunds. Even if the cash to do so was available, such a move could be considered illegal if it could be shown to have favoured certain creditors above others until there is an agreed rehabilitation plan approved by a majority of creditors and the courts.
On Tuesday, the airlines had this message for its customers: ‘The company is committed to safeguarding the benefits and retaining the privileges for our customers as soon as Thai can resume operations under the rehabilitation plan,’ it said.
Might be 6 months before refunds can be issued as customers cannot be prioritised as creditors until an approved rehabilitation plan is in place
The company is, however, in a position to offer customers replacement tickets, tokens or a range of other measures.
It will later be in a position to clarify the situation regarding refund applications from customers subject to the Bankruptcy Court’s agreement following a hearing scheduled for August 18th next to allow the firm proceed with the preparation and submission of a rehabilitation plan.
Other reports indicate that it may take up to 6 months for the company to issue refunds on tickets as the rehabilitation process will have to be sealed and put in place under the bankruptcy process for this to happen.
Last week, the airline sought orders to prevent aircraft being seized in three countries it regularly flies into
Even as it was reported that the management of the airline and its representatives were in discussion with creditors, the government and cabinet was informed by top legal advisor Deputy Prime Minister Wissanu Krea-ngam that, last week, bankruptcy or court orders protecting Thai Airways in three jurisdictions namely Germany, Switzerland and Japan were sought by the company.
The purpose of the moves was to protect Thai Airways aircraft from being impounded.
The legal moves were announced by Narumon Pinyosinwat, the government spokeswoman.
The government also announced that the airline was reversing an earlier decision and applying for Chapter 11 bankruptcy in the United States.
The company is being advised by international US law firm Baker McKenzie in Bangkok which has worked with the airline in the past on matters related to financing.
Most creditors of Thai Airways are in the United States, only 30% in Thailand – ฿244 billion owed
The airline has reported debts of ฿244 billion of which only 30% are to Thai based creditors. Most of them are cooperative societies and bondholders.
Ms Narumon confirmed that most international creditors of Thai Airways are based in the United States.
She also indicated that the government is concerned lest there be some objection raised before the Thai court which is due to give its decision on August 18th next.
She said that legal representatives and advisors to the airline were working hard to make sure that all goes smoothly at next month’s hearing.
Scheduled flights grounded until August 1st
This week, the airline announced that it was cancelling all flights until August 1st at the earliest.
One of its new board members and a former Thai justice minister, Pirapan Salirathavibhaga, explained that not only was the airline governed by Covid 19 restrictions in Thailand and other destination countries but that the current economic climate for airlines across the world has never been so negative.
‘THAI is ready to fly again but the company can only do so when there are enough customers to make the business viable,’ he warned.
Airlines worldwide are generating losses by flying
Thai Airways, when it commences flights again, will be flying into the worst market conditions for commercial aviation in history.
IATA, the International Air Transport Association, is predicting that airlines worldwide will lose nearly $100 billion this year and that income will be off by at least 50%.
IATA estimates that those operating airlines, at this time, with lower market demand and uneconomic Covid 19 regulations will be losing at least 20% on a gross margin basis.
To put it another way, Thai Airways by not flying its fleet, at this time, is saving money.
Thai Airways has fixed costs of ฿5 to ฿6 billion per month, high level of executive expenses spotlighted
However, this does not alleviate the difficult and, frankly, darker environment it is facing.
In the last week, it has been revealed that the airline’s fixed costs are between ฿5 to ฿6 billion per month.
The airline is preparing its survival plan with the input of management and five key members of the board including the former President of the airline until 2012, Piyasvasti Amranand.
This week, the deputy leader of the Democrat Party, Samart Ratchapolsitte, castigated senior management at the airline for drawing expenses on company vehicles of between ฿70,000 to ฿75,000 per month as they draw salaries that range from ฿240,000 up to ฿700,000.
‘Travel allowances can be given as part of benefits packages, but they must be fair to all staff in the entire organisation,’ Mr Samart said.
Investigation into the net level ticket sales receipts for 2019 being led by a former senior police officer
The current efforts to restructure the airline have also led to an internal investigation.
Sources at the Ministry of Transport have revealed that an investigation has been commenced after a review of ticket sales for last year, 2019.
It is reported that the airline generated a combined income of ฿140 billion in 2019 between freight and passenger tickets.
The figures showed the airline flew 25.4 million passengers. However, this worked out at a fare of only ฿6,081 per passenger.
‘THAI’s revenue last year slumped from the previous year, which raises questions, given a higher average cabin factor at 80%,’ a source at the Ministry of Transport revealed.
It has been reported that Police Lieutenant General Charnthep Sesaves, a former commissioner of the Metropolitan Police has been called in to oversee an investigation and report back in time before the Central Bankruptcy Court hears the airlines petition for it to approve the firm’s rehabilitation plan.
Government might still be called on to play a part
A spokesperson for the airline commenting on the matter of refunds this week, admitted that the firm was currently in crisis but said it was confident it would overcome the current situation and emerge stronger.
The Covid 19 crisis and emergency has also shown to many countries around the world the strategic importance of having a national airline at this time.
Some western countries have strongly subsidised their airlines as part of their response to this unprecedented pandemic.
The arrival of passengers at Suvarnabhumi Airport on Monday from the UK and Ireland highlights the similar, unique role that Thai Airways plays in Thailand.
This may ultimately mean that the Thai government, after all, has a key role to play if the firm, which is part of Thailand’s identify, is to be salvaged from what appears to be a difficult and messy rehabilitation process that could not be happening at a worse time for the airline and its promoters.