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Thai Airways clears legal hurdles to launch rehab plan

Bankruptcy court approves restructuring of cash-strapped flag carrier

The approved rehabilitation plan is designed to tackle Thai Airways' unprofitable businesses.   © Reuters

BANGKOK -- A Thai court formally approved Thai Airways International's rehabilitation plan on Tuesday, clearing all legal hurdles to set the plan in motion.

"The Central Bankruptcy Court granted an order to approve Thai Airways International's business rehabilitation plan," the airline said in a statement. "The plan administrators and all employees are committed to performing their duties for a successful implementation of the plan and for the utmost benefit of all creditors." 

In an online news conference held after the verdict was read, acting CEO Chansin Treenuchagron said that the company's ongoing restructuring efforts helped to "reduce almost 50% of expense related to workforce and remuneration packages. We were able to bring our cost down to lower than the industry standard. We will be able to compete in the next three to five years."

The airline only recorded annual profits twice in the past decade, and the rehabilitation program mainly deals with its unprofitable businesses. The plan consists of an organizational shake-up that will halve the airline's pre-COVID workforce and cut executive positions by 30%. The company has also been selling off jetliners, facilities and stockholdings as part of a review of its asset portfolio, and to raise working capital.

Some experts, though, say the plan is insufficient to repair Thai Airways' damaged balance sheet. The airline needs a major cleanup, including new funds to tide itself over during the five-to-seven-year rehabilitation. Creditors have been reluctant to grant large write-offs as part of the rehabilitation process due to the company's past mismanagement.

Uncertainties loom for Thai Airways, including how fast the world will recover from the pandemic and how travelers will behave in the post-COVID era.   © Reuters

Thai Airways got the nod for the plan from 28 out of 38 creditors at a meeting on May 19. The debt held by those creditors accounted for 91.56% of Thai Airways' total debt, well above the 50% required to proceed with the plan.

Winning creditors' backing was key; the court's approval was a formality by comparison. Nevertheless, it was a necessary legal step to implement the restructuring. The airline has been under court-supervised rehabilitation since September 2020. Then the COVID-19 pandemic brought a halt to international travel, dealing a further blow to the already floundering flag carrier.

The court approval gives Thai Airways a six-year extension on debenture redemptions. Three-year repayment concessions have also been negotiated with commercial banks. The airline reportedly offered creditors the right to convert debt to equity after the seventh year of rehabilitation.

Thai Airways Chief Financial Officer Chai Eamsiri said, "The plan is to ask for 25 billion baht from the government and another 25 billion baht from private institutions." However, Prime Minister Prayuth Chan-ocha had said in May that the state would not get involved in the rehabilitation.

As part of the rehabilitation, the government stripped the flag carrier of its state enterprise status by reducing its shareholding below 50%, having determined that strong job protections for state company employees would impede the restructuring. In the past, the airline often counted on government assistance after management missteps.

"We want the funding as soon as possible, as our revenue is still not at the normal level and we have a limited time," said Chai. "At present, we won't be able to last until the end of the year with our current cash flow." 

But outside observers are also concerned about uncertainty in the air travel business.

The rehabilitation plan aims to bring the airline back to stable profitability by 2025. Meeting that target depends on both smooth execution of the rehabilitation and a recovery of the air travel market by 2024. But it is unclear how quickly the world will bounce back from the pandemic and how travelers will behave in the post-COVID era.

Thailand plans to accept vaccinated international visitors to Phuket island without quarantines, starting July 1. The "sandbox experiment" is an effort to revive Southeast Asia's second-largest economy, whose tourism and related industries accounted for 20% of gross domestic product in pre-COVID times.

Thai Airways will take part in the experiment by welcoming vacationers from five European cities. Flights to Phuket from Paris, Copenhagen, and Frankfurt, Germany, will begin July 2. Routes from London and Zurich will resume the next day. The test's success will bring the airline closer to achieving its recovery target, while failure to attract visitors will add to the uncertainty over its future.

"We will execute our plan," said CEO Chansin, "and then in three or six months, we will update you with our progress."

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