Thai Airways aims for a return to global glory

Thai Airways is recovering from its fall and intends to make a strong comeback by climbing into the top 10 of the world airline rankings.

The Bangkok Post newspaper chronicled the airline's descent into bankruptcy proceedings in 2020 and explained Thai Airways' attempts to turn things around.

What happened to Thai Airways in 2020?

Thai Airways filed for bankruptcy protection in May 2020 with the Central Bankruptcy Court.

This anticipated move came after the former state-owned company received government approval to undergo a rehabilitation process.

The airline had been mired in financial difficulties for several years.

A statement from the Stock Exchange of Thailand (SET) revealed that Thai Airways' assets stood at 256 billion baht at the end of 2019 and its debt-to-equity ratio had skyrocketed to 21:1.

The company's financial woes have been exacerbated by the pandemic, as strict air travel regulations led the airline to suspend flights as tourism declined.

Thai Airways' first-half 2020 profit report revealed a significant loss of 28 billion baht.

The government initially planned to bail out Thai Airways, but faced severe public criticism.

The government later insisted it had avoided throwing the airline a financial lifeline because it needed the money for aid programs aimed at mitigating the impact of Covid-19, with the aim of reinvigorating the economy.

The 2020 court-ordered rehabilitation reduced the Finance Ministry's controlling stake in Thai Airways and cost the airline its state-owned status, but it saved Thai Airways from creditors.

How is the airline restructuring its massive debt?

The airline received the green light for its original rehabilitation plan from the Central Bankruptcy Court in mid-June 2021 to restructure its 400 billion baht debt.

Restructuring efforts rely largely on debt payment extensions, interest waivers and debt-to-equity conversions.

Other methods of raising capital include asset sales and fleet and workforce reductions, among others.

Interestingly, it took more than a year for the rehabilitation plan to be approved by the authorities, which was due to lengthy negotiations with creditors, who were determined to emphasize the state's role in securing vital loans for the struggling national company.

The creditors managed to agree that Thai Airways would be allowed to operate all of its businesses with the same privileges it enjoyed before ceasing operations as a state-owned enterprise and entering the debt restructuring process.

They also amended the company's financial management clauses, which they deemed necessary to facilitate the repayment of outstanding obligations and the obtaining of new loans to maintain the airline's liquidity.

What about Thai Airways' financial results?

Since the rehabilitation efforts began, things have started to change for Thai Airways.

The airline improved its performance in the second quarter of 2022, with revenue totaling 21.5 billion baht, up 282% from the same period last year.

The national carrier also reported a 619 percent jump in revenue from passenger and cargo services to 19.8 billion baht.

This increase was mainly attributed to increased factory production and freight volumes.

Total operating expenses, excluding one-time transactions, amounted to 22.8 billion baht, 126% higher than the same period last year.

This increase is mainly attributed to the sharp rise in kerosene prices, which increased by 104%, resulting in kerosene expenses of 8.9 billion baht, or 39.2% of total operating expenses.

Earnings before interest, taxes, depreciation and amortisation (EBITDA) after deducting aircraft leases amounted to 168 million baht, a significant improvement from last year's loss of 9.2 billion baht.

This is the first profit of this type since the company entered the rehabilitation phase.

Thai Airways and its subsidiaries reported financial expenses of 3.1 billion baht and made one-off transactions with a net profit of 1.9 billion baht, consisting of profits from debt restructuring, organizational restructuring, a staff compensation structure and the sale of investments and assets, despite losses due to asset impairment and exchange rate.

Is Thailand's Tourism Rebound Beneficial for Thai Airways?

The steady recovery of the aviation sector, largely aided by the easing of travel restrictions in most countries, is boosting demand for Thai Airways, which has gradually resumed flights.

In mid-August this year, Thai Airways announced that the airline's and its subsidiaries' available seat kilometers in the second quarter of 2022 had increased by 367% year-on-year, while revenue passenger kilometers had increased by 1,767%.

The cabin occupancy rate reached 60.3% on average, a significant increase compared to the previous year (15.1%).

During the second quarter, the company carried 2.01 million passengers, an increase of 570% compared to the previous year.

Before the pandemic, Thai Airways recorded an annual average of around 19 million passengers.

The airline is targeting 9.18 million passengers next year, 11.8 million in 2024 and 12.4 million in 2025.

Thai Airways forecasts 4.48 million passengers for the full year 2022.

What does the new recovery plan include?

On September 1, Thai Airways' creditors approved a new recovery plan, which the airline called a major step on the road to full recovery.

The amended plan, which was submitted to the Central Bankruptcy Court in July, calls for borrowing 12.5 billion baht over six years and another 12.5 billion in the shorter term.

It also plans debt-for-equity swaps totaling 37 billion baht, or about 25 percent of its more than 100 billion baht debt.

Piyasvasti Amranand, chairman of the Thai Airways committee overseeing the court-supervised debt plan, said on July 1 that the amended version was necessary after the airline reported a better-than-expected recovery from the financial crisis.

Under the previous plan, Thai Airways expected to face a cash shortfall of 50 billion baht and planned to borrow 25 billion from state-owned lenders and the rest from private financial institutions.

However, the airline realized that it would be difficult to obtain the full amount of loans required and worked to sell several assets and old aircraft, which brought in more than 9 billion baht.

As part of Thai Airways' debt restructuring, the company is also exploring potential candidates to launch its first private partnership.

The most likely company is the national oil and gas conglomerate PTT, as it already has excess capital that it could quickly inject to reinvigorate the struggling airline.

Thai Airways is in talks with other potential partners, including some foreign companies, to serve as a strategic partner.

The airline also discussed with its shareholders the diversification of its activities into related sectors such as logistics, catering and freight transport.

Mr. Piyasvasti said that after the rehabilitation, the government would remain the majority shareholder with a combined stake of 43 percent, of which 33 percent would be held by the Finance Ministry, with the remaining 10 percent belonging to Krungthai Bank and other state shareholders.

Source: Bangkok Post