Embattled Thai Airways continues with its business rehabilitation plan, on Thursday posting a progress report to the Stock Exchange of Thailand. The update provides mixed news. While the airline is meeting its court-imposed obligations, progress remains torturously slow.
Thai Airways has met a critical creditor payment deadline
Thai Airways filed for bankruptcy protection in May 2020, buckling under debts of more than US$9.8 billion and the impact of the worldwide travel downturn. Some 16 months later, attempts to rehabilitate the flag carrier to its former fortunes are underway.
In mid-June 2021, Bangkok’s Central Bankruptcy Court approved the rehabilitation plan after extensive negotiations with creditors. The Court made several orders, giving the airline’s administrators until September 14 to carry them out. That included making debt and interest payments of $37.5 million to creditors by then. On Thursday, the administrators confirmed payment in full by the deadline.
Since the restructuring process commenced in 2020, the administrators have also written off 516,129,033 in unissued and unsold shares, reducing Thai Airway’s registered capital from $8.018 billion to $6.48 billion. The administrators have sold off three non-core assets, including a fuel services business, shares in Nok Air, and land and buildings, raising $142.6 million.
This capital was raised before the June 14 court ruling. Since then, Thai’s administrators say although they are authorized to sell, lease, or seek benefits from non-core assets, nothing has happened since then. But five CFM56-3CA engines for Boeing 737-400 aircraft are up for sale. The airline’s administrators say they are looking for buyers.
Cutting costs and boosting revenues
Thai’s rehabilitation plan is all about reducing costs and increasing revenues. The airline is downsizing its workforce. Slightly trickier is the need to reduce the cost of aircraft leases. Protracted negotiations with aircraft lessors were a key reason why the rehabilitation process is proceeding at a snail’s pace. Thai Airways also wants to cut costs in other areas – renegotiating agreements with trade suppliers, landlords, and service providers.
Concurrently, Thai’s administrators are trying to boost revenue flows. That’s easier said than done in the current flying environment. Aside from cargo and repatriation operations, Thai’s flights remain heavily curtailed. However, the airline did say this week it was eyeing resuming flights to selected countries with 70% plus vaccination rates.
This is important because tickets purchased outside Thailand tip critical hard currencies, including USD, into Thai’s cash reserves. While most of Thai’s current revenues come from within Thailand and are paid in Baht, most of Thai’s payments – such as debt repayments, fuel, and aircraft leases are in USD.
Thai Airways is also trying to think outside the box when it comes to raising revenue. This includes renting out time in their flight simulator and developing Thai’s Delicious in the Sky concept. How successful these add-ons are as revenue sources, Thai’s administrators are not saying. However, an August analyst’s briefing revealed Thai’s total non-ticket revenues in the first six months of 2021 totaled $48.4 million.
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Business needs to rebound at Thai Airways
Thai Airways has a lot riding on its domestic and international operations rebounding. Assets can be sold off and costs cut, but improving revenue flows is essential if the airline is to pull through.
Thai flew 720,000 people in the first six months of 2021, compared to 4,570,000 passengers in the same period in 2020. The airline surprised many, posting a net profit of $333 million in the first six months of 2021. Last year, it recorded an $840 million loss for the first half.
But revenues remain way down. The airline’s assets declined by 19%, but their liabilities only reduced by 16%. The all-important assets-to-debt ratio is going the wrong way. It indicates Thai’s administrators have a way to go yet before restoring the airline’s fortunes.
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