A bankruptcy court in Bangkok has given Thai Airways the greenlight to go ahead and restructure the airline. Akin to the Chapter 11 process in the United States, insolvency experts will attempt to steer the embattled airline out of its financial strife. But with US$11 billion in debt and having defaulted on loans and bonds worth around one-third of the airline’s assets, it’s going to be a rough ride ahead for Thailand’s national airline.
Another step in the long road ahead for Thai Airways
On Monday, Bangkok’s Central Bankruptcy Court allowed an application to proceed with a formal restructuring process. The process to restructure the airline began in May when the Thai Government sold down its stake in Thai Airways. That allowed the airline to make an initial application to restructure to the courts and shield it from creditors.
Since then, Thai Airways has staggered along. Presently, seven of its 75 planes are in service. Last month, the airline announced a US$900 million loss from the first half of 2020.
Chanchai Chaiprasit, PricewaterhouseCooper’s Chief Executive Officer in Thailand, told Bloomberg there’s a lot of work ahead for Thai Airways.
“The court’s debt rehabilitation approval is just a tiny step. It’s an uphill task to come up with a debt plan that would satisfy banks, aircraft lessors, suppliers, and other lenders.”
Court attributes Thai Airways’ woes to COVID
In a statement, Thai Airways said they would prepare a business reorganization plan as soon as possible. Thai Airways anticipates providing this plan to the court later this year.
In allowing the restructuring to go ahead, the Central Bankruptcy Court attributed the current problems at Thai Airways to external factors.
“The problem that caused the debtor’s financial situation is not from its business but from the rapid change in aviation, particularly the impact from COVID-19,” the court said.
But problems at Thai Airways came to a head before the arrival of COVID-19. The airline has long been accused of mismanagement, cronyism, and waste. The legacy carrier has long struggled against more nimble carriers, especially new low-cost airlines in the region.
Last year, then Thai Airways President, Sumeth Damrongchaitham, said;
The competition is very fierce this year. Thai is really in a crisis. Next year it must do its best. If staff are still unaware and do nothing, they will not have enough time to fight back. Today very little time remains. Today there is no comfort zone. Everyone will die if the vessel sinks,”
Soon after, there was a cleanout among senior management ranks at Thai Airways. A new President was installed as Chansin Treenuchagron replaced Sumeth Damrongchaitham. Chairman Ekniti Nitithanprapas also resigned.
Thai Government onboard to resolve problems at Thai Airways
While the Thai Government places great importance on the continuation of Thai Airways, it seemed even they were looking for a resolution strategy. In late May, the government sold down its stake to 47.86%, ending the airline’s days as a majority state-owned airline.
By ridding the airline of majority state-owned status, Thai Airways was better able to access bankruptcy shields and provisions. This includes preventing assets from being seized. It also allows the airline to restructure debts and contracts. It’s a path other airlines in other countries have gone down, many successfully.
Thai Airways says if the court gives their restructuring plan the tick of approval later this year, they’ll call a creditors’ meeting soon after. If the creditors approve the plan and Thai Airways gets the final green light from the courts, the airline will move to implement the restructuring plan in 2021.