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Thai Airways' rebuilding plan hits turbulence from Airbus

European aircraft maker balks at maintenance yard project

The coronavirus pandemic is leaving planes grounded across Asia, in a potential blow to Thai Airways' plans to offer maintenance. (Photo by Akira Kodaka)

BANGKOK -- Thai Airways International's plan to open an aircraft maintenance yard in eastern Thailand is in jeopardy after partner Airbus missed a March deadline to submit a contract proposal, putting the carrier's path to reconstruction in question.

The two companies agreed in 2017 to build a maintenance, repair and overhaul facility at U-Tapao International Airport in Rayong Province, servicing mostly low-cost carriers. The plan originally called for operations to begin last year, but the project was repeatedly delayed.

Thai Airways asked Airbus to submit a proposed joint venture contract by March 6, then extended the deadline to April 20. It will seek a new partner if the European aviation giant does not respond by then.

The project is a pillar of the troubled carrier's turnaround plan. With the coronavirus pandemic shrinking the Asian air travel market for what may be years to come, a recovery now looks even more distant.

The planned venture counts on rising demand for plane maintenance in Asia. The International Air Travel Association has projected passengers in the Asia-Pacific region surging to 3.9 billion in 2037, accounting for almost half the global total.

Airbus had forecast the region's aircraft fleet nearly tripling from 2017 to roughly 17,000 over two decades. It had expected to handle maintenance on 80 to 100 planes a year for Asian customers including budget carriers.

Why the aircraft maker has not submitted a contract for the maintenance yard project remains unclear, but negotiations are believed to have stalled amid disagreement over the terms.

The 10.6 billion baht ($323 million) project had been envisioned as a public-private partnership, with Thai Airways and Airbus covering 4.3 billion baht and the Thai government picking up the rest of the bill. Airbus reportedly has objected to a provision that would require all assets to be transferred to the Thai government after 50 years.

The coronavirus outbreak is changing the calculus for Airbus as well. The manufacturer had expected to deliver an all-time high of 880 planes this year, but it is now considering throttling back production as air travel plunges. And with some analysts warning of a lasting contraction in Asian demand, rethinking the maintenance yard project would be a logical move.

Thai Airways, meanwhile, had been foundering well before the pandemic, grappling with high costs and competition from cheaper rivals. The carrier reported a net loss of 12 billion baht for 2019, bringing its total losses for the past three years to 26 billion baht.

The maintenance yard had been expected to contribute 200 billion baht in revenue over 50 years, providing what now-departing President Sumeth Damrongchaitham called a stable contribution to profits.

Going back to square one would also cause problems for the Thai government's efforts to develop advanced industries such as aviation in its Eastern Economic Corridor project, which includes Rayong Province and U-Tapao.

Work has begun on a high-speed railway linking U-Tapao with Bangkok's Suvarnabhumi and Don Mueang airports. Scrapping the maintenance yard plans would throw off the government's demand assumptions, potentially forcing a rethink of a pillar of its growth strategy.

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