Thai Airways In Crisis: Fleet Renewal Project Aborted And Airline Being “In Risk Of Closure” After Losses Mount

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The situation of the financially unstable Thai Airways is apparent worse than so far assumed as it’s president just stated publicly that the carrier is “in a crisis and faces possible closure”.

Earlier this month it was made public that Thai Airways has scrapped a project that was seeking for a $5bn fleet renewal after being pressured by the government (it’s main shareholder).

Thai Airways has been known for years of not decades to run giant deficits, having an ageing fleet and being used for personal enrichment plus a private taxi for all sorts of dignitaries in the country.

This mentality which went rampant for decades indeed seems to have finally brought the airline to a breaking point as the companies president said in clear remarks.

Bangkok Post reported about the matter earlier today.

Thai Airways International (THAI) president Sumeth Damrongchaitham said on Tuesday that staff must cooperate with the airline’s rehabilitation efforts because it is in a crisis and faces possible closure.

He sent his message to THAI executives during a training session at the airline’s headquarters.

“Today I want staff to be united to overcome the obstacles. Otherwise, the national airline must close down. There is still time for a solution, but there is not much time,” Mr Sumeth said.

He said that THAI had lost its market leadership on several routes to competitors, citing northern routes that had generated a third of THAI’s revenue but were now dominated by low-cost airlines.

“The competition is very fierce this year,” Mr Sumeth said. “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,” .

THAI would cut costs by reducing the salaries of managerial staff and following a zero inventory policy at its catering department, he said.

“There will be no other rewards for the staff, because the top prize is the survival of the company,” Mr Sumeth said.

In the first half of this year, THAI posted a loss of 6.44 billion baht, raising its accumulated loss to 280 billion baht. It employs more than 20,000 people.

Strong words for a company that has become complacent for a long time. Management used to think that there is no way Thailand (as in the government) would ever let the flag carrier fold and the staff is usually hired based on connections, hence there is a certain entitlement mentality which the President hinted on in his speech.

The Thai government is in fact the majority shareholder of Thai Airways Pcl and it was them who ordered the TG board to scrap the fleet modernization plans as Nikkei Asian Review reported last week.

Thai Airways International has been told by the government, its top shareholder, to scrap its 156 billion baht ($5.13 billion) fleet renewal plan and focus on trimming costs, as it heads toward the third consecutive year of losses.

But with the company resisting painful reforms that would slash its bloated workforce, the government’s frustration is mounting.

The airline “is now in crisis. Its financial status is in a critical condition,” Deputy Transport Minister Thaworn Senneam said in early October. “The question is: How well aware is the airline’s board chairman about this matter?”

Thai Airways had planned to retire 31 aging planes over eight years, replacing them with 38 cutting-edge models to improve in-flight services and reduce costs.

Aviation authorities gave the carrier the green light in April. But a new coalition government that took power in July immediately told Thai Airways to drop the massive investment, which came amid financial troubles at the airline and faced opposed from its labor union.

The carrier, which is 51% owned by the Thai government, abandoned the fleet upgrade in September. Management is slated to submit a reworked proposal within six months. …

Thai Airways’ debt to equity ratio, a key indicator for financial health, worsened to 7.4 as of December 2018. By comparison, the ratio stood at 0.5 for Singapore Airlines.

British accounting company Baker Tilly has raised alarm over “slack capacity” in the airline’s workforce, calling for drastic action to resolve it. Thai Airways has 6,000 more employees than Garuda Indonesia, another flag carrier of a similar size.

Still, Thai Airways CEO Sumeth Damrongchaitham is reluctant to cut staff. “We are not considering layoffs or lowering wages,” he told Nikkei in an interview.

“We saw a temporary recovery in earnings after a previous layoff, but we returned to the red the following year,” he said, citing a drop in morale. The CEO is focusing instead on improving cost efficiency as well as earnings from peripheral businesses like catering and e-commerce to turn the company around.

The carrier expects a net loss of roughly 10 billion baht for 2019. The company aims to eliminate its accumulated debt, which reached 35.9 billion baht at the end of 2018, by the end of 2022.

Thai Airways shares are down about 30% from the beginning of the year after falling 4.55% on Tuesday to 8.4 baht.

It’s clear that the primary objective of the Thai Airways President is to primarily keep caring for these 20,000 employees being totally immune to calls for cutting the fat, meaning letting people go in order to save the company or at least whip it into shape.

Malaysia Airlines was in a similar predicament until the company took on a series of foreign CEO’s who served as what I called back then “butchers” and dramatically cut staff – a highly unpopular move in a country with fat cat politics, corruption and buddy-buddy employment tactics. Needless to say none of these CEO’s lasted very long but at least the task was done and Malaysia Airlines is in better shape now.

Conclusion

Thai Airways can’t continue serving as the piggy bank for all these staff members and people who fly around for free or very little.

At the same time letting the company fail would be a logistical disaster for the country and especially the tourism sector. While Bangkok is served by a range of foreign airlines and domestic routes are well covered by low cost carriers the impact of a grounded Thai Airways would be rather catastrophic. I somehow can’t believe that if push comes to shove the government will let the company fail. That would be a giant loss of face plus all the aforementioned problems.

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