On Friday 14th August, the firm’s auditors, Deloitte Touche Tohmatsu Jaiyos, declined to sign off on the airline’s accounts to June 30th citing concerns about financial liquidity, debt defaults and the ongoing losses of the venture as reasons. It comes as the airline industry association IATA points to government support for national airlines worldwide facing $84 billion in losses this year. The body only sees things recovering in 2022 and 2023 in its most optimistic assessment. At Monday’s hearing, the acting President of Thai Airways, Mr Chansin Treenuchagron, did promise some relief for disgruntled customers waiting for refunds in respect of flights paid for but later cancelled.
The steep incline of the challenge to save Thai Airways looked a little steeper on Monday after a court in Bangkok scheduled two days to review a proposal to allow for the restructuring of the loss-making firm. At the hearing, however, it emerged that 16 creditors opposed the move but management has pointed out that it has the support of creditors representing more than 50% of the liabilities in the company, to press ahead. Shares slumped in value by nearly 12%.
Thai Airways’s shares lost 11.9% on Monday after a hearing before the Central Bankruptcy Court in Bangkok deferred a decision to approve the company’s restructuring proposals which may later be put to creditors if the court gives its assent.
The share price in the national airline of which the Thai government, through the Ministry of Finance, still maintains a shareholding north of 47%, dropped to ฿3.40 with over eight and a half million shares changing hands.
August 20th and 25th set to review the plan
The court set August 20th and 25th as additional hearing dates to review and hear evidence on the plan put before it.
It was revealed that 16 shareholders have objected to the court against the restructuring going ahead including three institutional creditors and thirteen others.
Acting President said things look ‘promising’
The acting President of the troubled airline, Mr Chansin Treenuchagron, issued a statement following the court hearing in which he said that things went ‘smoothly’ and that the situation looked ‘promising’.
The airline’s restructuring proposal is being led by a committee of seven including current management and Mr Piyasvasti Amranan, a respected former President of the airline and Minister of Energy as well as Boontuck Wungcharoen, another Thai business heavyweight and former boss of TMB Bank.
A company called EY Corporate Services Limited in Bangkok is advising the airline on the restructuring process.
A promise for ticket holders seeking a refund on cancelled Thai Airways flights this year
During his interview with reporters, Mr Chansin also had some good news for ticket holders of cancelled flights seeking a refund.
He promised that once the restructuring proposal for the airline is approved by the court and subsequently by the creditors, a new streamlined refund system will come into effect to speed up the current regime
‘All customers would not have to spend much time and money during the refund procedure. They would only have to fill an application form to refund their payment. The rest of the process would be done by our officers,’ he said.
Creditors representing more than 50% of liabilities reported being in favour of the plan
On Monday, Mr Chansin, an experienced executive and former boss of oil firm PTT, assured reporters that creditors who are in agreement with the planned restructuring represent more than 50% of the debts currently owed by the firm.
This includes Thailand’s Ministry of Finance. He suggested that if the courts give the green light, it will be two months before detailed plans are presented for approval by the creditors at a meeting.
Shares in the airline suspended on Friday after bombshell from auditors who refused to sign accounts
Shares in Thai Airlines had been suspended on Friday last after its auditors, Deloitte Touche Tohmatsu Jaiyos, declined to sign the company’s financial statements to June 30th which showed a loss of ฿28 billion in the first half.
The auditors raised concerns about the company’s debt defaults and lack of financial liquidity.
It suggested that these have raised ‘material uncertainty’ over the future of the firm. The unsigned financial statements to the 30th June show higher circulating liabilities than assets as the company has consistently lost money since 2013.
Scale of the business problems at Thai Airways is obvious and vast as seen from the figures available
The scale of the problem at Thai Airways can be seen from the strange and remarkable outcome that saw the firm losing ฿5.34 billion in the 2nd quarter compared to a higher loss of ฿6.89 billion in the same period last year despite nearly all its aircraft being grounded for the period with a loss of over 95% of passengers and a loss of income of 94%.
Clearly, this suggests a mammoth task ahead of its management both in terms of the firm’s outlandish fixed overheads and its unsustainability due to its failure to generate operational profitability.
Thai Airways applied for bankruptcy protection in May this year.
Flying into the most depressed market since the industry began over seventy years ago
The firm will also be flying into a market which is experiencing the worst depression in its history spanning over 70 years.
In a June interview with the IATA (International Air Transport Association) CEO, Alexandre de Juniac, on France 24 TV, the industry boss predicted that its airline members will lose at least $84 billion this year.
Mr De Juniac predicted that it will be 2022 or 2023, at best, before the industry gets back to pre-pandemic levels.
He predicted that the best-case scenario, assuming that there is no significant second wave or shutdown equivalent to the first, was that 2021 will see a 25% loss in traffic compared to a best-case prediction of 50% for this year.
‘If there is no second wave, then that means the worst period is just behind us,’ the pragmatic CEO said.
The situation is even bleaker for Thailand, where the current ban on passenger flights has now, officially, been deemed ‘indefinite’ despite efforts in Europe and the US to restart with admittedly faltering results, as Covid 19 infections rise, causing alarm albeit with significantly reduced levels of hospitalisation as of now.
Old Thai Airways model cannot work
Mr De Juniac also raised concerns about the high-cost airline industry model pursued by Thai Airways in the past pointing out that this pandemic may certainly see an end to the high cost and high levels of business travel, traditionally a fare that has subsidised many Thai Airways flights and was key to its past viability.
The new Thai Airways plan is reported to be hinged on moving the airline towards being more competitive in the marketplace.
IATA represents 82% of the airline industry with over 290 participating airlines including Thai Airways (TG).
IATA has called for Covid 19 testing at all airports worldwide and a return to open skies
In recent months, the travel industry boss has pleaded with governments worldwide to install fast testing at airports and not to inhibit world air travel through quarantine or other restrictive measures as the best way to bring the world’s economy back on track and ensure a revival of the global tourism industry.
The IATA chief published a survey which showed 83% of travellers would not fly to a tourist destination with mandatory quarantine.
However, in Thailand, it is clear that the government, the Thai public and medical experts have rejected this and have decidedly placed public health as the priority.
Thailand’s Tourism Authority is, therefore, currently ruling out any foreign tourism until at least early 2021.
Government support for national airlines back in fashion in the US, France and Germany
Mr De Juniac has also pointed to crucial state support for airlines, at this time, with $20 billion having been pumped in by the US administration to support its airline industry while in France and Germany both have supported their national airlines with Air France and Lufthansa receiving cash handouts.
It could well be that the 47% shareholding held by the Thai government which, while it no longer is enough to maintain the status of Thai Airways as a state enterprise, could still be significant in its future.
But only if its chronically high overhead level and its inability to meet market demands are addressed by its experienced and skilled new management team.