The national carrier is flying into turbulence, and its woes are being compounded by a near-standstill in global air travel. The hope is that an extensive restructuring would put the carrier on a stronger footing – and lead to broader reforms of state-owned enterprises in Thailand.
Sihasak Phuangketkeow
20 May 2020
For the past two weeks the Thai government has been in a quandary over the fate of Thai Airways, the country’s ailing national carrier. The airline has suffered several years of heavy financial losses. Its outstanding debts has soared beyond manageable levels. To compound matters, the carrier will likely fly into heavier turbulence; the on-going Covid-19 pandemic has brought global air travel to a near-standstill.
The government of Prime Minister Prayut Chan-o-cha initially agreed to provide Thai Airways with a bailout of about 54 billion baht on the condition that it submit a comprehensive rehabilitation plan for approval by the cabinet. Prayut himself appeared to confirm this decision during a press conference on 5 May, saying that the airline would be given one last chance to turn things around.
But in an unexpected turn of events, the Transport Ministry, which oversees Thai Airways, has now taken a different position. It argues that the airline’s rehabilitation plan was inadequate and fails to take into account a host of risk factors. In the ministry’s view, providing new loans would be tantamount to giving a terminally-ill patient medication to relieve pain while postponing the need for urgent surgery. The best and most viable recourse would be for Thai Airways to file for bankruptcy and to restructure and reorganise the company through negotiations with its major lenders. The ministry cited the successful turnaround of Japan Airlines as a relevant example. The process, said the ministry, would allow for a pause in debt servicing and a renegotiation for more favourable conditions of the company’s financial liabilities. This would also reduce the amount of loans to be repaid. The bottom line: the airline can continue to operate while working out, with the help of an independent administrator, a solid rehabilitation plan to be approved by creditors.
At first, the proposal of the Transport Ministry appeared to have been opposed by the Finance Ministry, which holds a majority 51 per cent share in the carrier. While agreeing with the need for a credible proposal for rehabilitation and restructuring, the Finance Ministry preferred that the airline avoid filing for bankruptcy. But it came round to Prayut’s plan for bankruptcy after the premier became convinced that the government could not continue to pour money into the airline at a time when it is already hard pressed to muster the financial resources needed to deal with the effects of the Covid-19 pandemic on the economy and the livelihoods of millions of Thais. The fact is that, even with a loan of 54 billion baht, the airline would still need to raise an additional 80 billion baht to cover its fixed expenses until the end of the year.
Quite understandably, Prayut was cognisant of the outcry from large segments of the public, which took exception to the use of taxpayers’ money to bail out the national airline. The popular perception is that Thai Airways, as a state enterprise, had the expectation that the government would have to come to its rescue whenever it was in trouble and that it had botched many opportunities to get its act together. In the eyes of many, the plight of Thai Airways reflected the ills of the country’s patronage system. On 19 May, Prayut announced that the Cabinet had approved a plan to restructure the carrier’s finances through a bankruptcy court.
In the larger context, the case of Thai Airways reflects the dual nature of its status as both a state enterprise and a public company listed on the Thai stock exchange.
Compounding the situation was the hardline position taken by the powerful Thai Airways labor union. Initially, it openly refused to consider any restructuring that would terminate the airline’s privileged status as a state enterprise. It also opposed the idea of reducing the majority shareholding of the Finance Ministry, and of divesting the company of its ticketing, catering, ground services and maintenance operations by turning them into separate business entities. The fear is that this would pave the way for privatisation, weaken the union’s bargaining position, and lead to the reduction of salaries and personnel. Significantly, many of the company’s detractors recall the role of the Thai Airways labour union in the protests against the government of then Prime Minister Yingluck Shinawatra that led to the military intervention of May 2014. Sensing the potential of a backlash from the public, the union moderated its position, acknowledging that Thai Airways was in dire need of restructuring and expressing the willingness to work with the government to get the national carrier back on its feet.
In the larger context, the case of Thai Airways reflects the dual nature of its status as both a state enterprise and a public company listed on the Thai stock exchange. State enterprises are unavoidably subject to political interventions. Key appointments are often made on the basis of connections or politics rather than merit. Strategic decisions are frequently based on considerations that are not in the best interest of the company or the public.
It is too early to predict the fate of Thai Airways, as many matters await resolution. Moreover, Thai Airways might have to file for bankruptcy in the US courts as well as in Thailand, given that many of its creditors are foreign companies. Still, as it faces up to its challenges, many are certainly hoping to see the national carrier taking to the skies again. Others, however, hope that the case of Thai Airways would set a historic precedent for a broader reform of state enterprises in Thailand.
Sihasak Phuangketkeow, former Permanent Secretary of Thailand’s Ministry of Foreign Affairs, is a Visiting Senior Fellow in the Thailand Studies Programme of the ISEAS – Yusof Ishak Institute.
ISEAS Commentary — 2020/67
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