Decided: Thai Airways Goes Into Rehabilitation Via Bankruptcy Court Proceedings

The hammer has come down on Thai Airways although not as drastic as it could have been as the government decided to send the airline through the bankruptcy process.

THAI will undergo “rehabilitation” which means vast restructuring, debt management and loss of state enterprise status as the Finance Ministry will sell 3% of it’s shares to a private fund.

Interestingly 35% of Thai Airways creditors are located in the U.S. which requires bankruptcy proceedings in U.S. courts as well, likely in the form of a Chapter 11 filing.

Bangkok Post reported tonight that the government chose the “rehabilitation” route in favor of the initially discussed loan guarantees or a hard crash bankruptcy which would have meant an at least temporary grounding of the airline.

The cabinet on Tuesday decided that ailing Thai Airways International Plc (THAI) must go through rehabilitation via the bankruptcy courts in a “difficult but necessary” decision that ushers in complex, make-or-break steps for the national carrier, according to Prime Minister Prayut Chan-o-cha.

Gen Prayut insisted the cabinet had opted out of throwing a financial lifeline to the airline because it must save the money for relief schemes needed to alleviate the Covid-19 crisis and reinvigorate the economy.

“Today I had to make a very difficult decision regarding THAI. But it is one that I know is in the best interests of the public and of our country,” he said. …

The court-dictated rehab, however, will involve reducing the Finance Ministry’s majority stake in THAI and cost the airline its state enterprise status.

THAI should be allowed to continue operating to generate income so it can regain business strength, Gen Prayut said. …

The bankruptcy courts would appoint appoint professionals to execute THAI’s rehab who would hopefully turn the airline around, Gen Prayut said, saying the national carrier has been a cultural ambassador for Thailand.

On Tuesday, Finance Minister Uttama Savanayana said the State Enterprise Policy Office will come up with a plan to bring the stake in THAI held by the ministry down from 51.03% to below 50%, which would end the airline’s state enterprise status.

After the share sale by the ministry, all but three airline board members will resign.

Just three weeks ago we wrote about the government having pretty much agreed to a THB 50 Bln bailout and the company retaining it’s state enterprise status but it appears the government has changed it’s thinking and realized that further loans to THAI under these circumstances would just add to the already enormous debt load and would just shovel money into a fire.

It’s really a sad and tragic affair with Thai Airways as the carrier is fighting for survival as the current aviation crisis is threatening to pull the plug once and for all on the financially desolate carrier which hasn’t been profitable for almost a decade even prior to COVID-19.

Maybe this rehabilitative bankruptcy filing under a Chapter 11 equivalent is really the best way to help the carrier to get back on track? This would also require passenger numbers to be steady again which isn’t something that will happen in the next few months as Thai Airways is currently grounded until at least July 1st 2020 amid a total border closure for all foreigners entering the country.

Conclusion

A complete grounding stemming from a full scale bankruptcy would have been the worst possible outcome however if there was ever a good time in aviation history for a grounding and resurfacing of an airline it would be now as all air traffic is pretty much on the ground either way. The downside to this argument would be that any and all tickets passengers currently hold with THAI and likely their mileage program Royal Orchid Plus would lose all value.

I’m also not convinced that the government was prepared to accept the humiliation of shutting THAI down for good and I’m sure the royal family including the king (who is a trained and qualified pilot) wouldn’t like it either.

As it stands right now THAI will remain operational as soon as flights resume and borders reopen. It remains to be seen if July 1st is really a realistic date or if it will be pushed back further. The government has currently given all foreigners in the country a temporary visa amnesty until July 31st as many held Thai Airways tickets when the airline started to wind down operations in April. The only option would be to book a new ticket with the few airlines that still fly on ones own expense or wait until THAI resumes operations.

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