How Thai Airways Avoided Collapse

Thai Airways Turnaround: A Deep Dive

Key Concepts:

• Rehabilitation Plan: A court-appointed plan to restructure Thai Airways after filing for bankruptcy protection.
• Political Interference: Undue influence from government entities affecting airline operations and decision-making.
• Fleet Strategy: Plans for managing and modernizing the airline's aircraft.
• Cost Restructuring: Measures to reduce expenses, including staff reduction, renegotiating aircraft costs, and managing financial costs.
• Network Airline: An airline that focuses on connecting passengers through a central hub (Bangkok in this case).
• Free Float: The portion of shares of a company that are available for public trading in the stock market.
• SET: Stock Exchange of Thailand.
• FTE: Full-Time Equivalent, a measure of the number of full-time employees plus the equivalent number of part-time employees.

Background and the Return of Piyasvasti Amranand

Thai Airways, once a symbol of Thai pride and known for its "Smooth as Silk" service, faced significant challenges by the late 2000s due to rising debt, high costs, outdated planes, and politically driven decisions. The COVID-19 pandemic exacerbated these issues, leading to the airline filing for bankruptcy protection in 2020. Piyasvasti Amranand, who previously served as CEO but was forced out due to internal politics, was brought back as the court-appointed chairman of the rehabilitation plan. He was called upon by General Prayut, the Prime Minister, to help save Thai Airways. Piyasvasti felt a sense of unfinished business and a desire to help the airline, believing that despite its financial problems, it was a good airline with good people.

The Painful Rehabilitation Process

The rehabilitation process was described as "quite painful, complicated." A major challenge was disagreements among planners and government agencies. For example, one planner opposed staff reduction, which Piyasvasti considered essential for survival. The airline nearly halved its workforce and reduced its fleet size by 20%. While most employees were cooperative, about 1000 did not leave voluntarily and took the airline to court, but Thai Airways won all cases of unfair dismissal.

Another significant hurdle was the lack of government financial support. Initially, the Prime Minister agreed to a 50,000 million baht cash injection, but many government agencies opposed it, and the airline ultimately received no cash injection. This forced Thai Airways to rely on its own resources, leading to substantial and rapid cost-cutting measures and marketing reforms. Piyasvasti noted that, in retrospect, the lack of government funding was beneficial as it forced the company to undertake more fundamental reforms.

It took about one year to finalize a rehabilitation plan that everyone could agree on, a process that involved difficult negotiations with creditors.

Autonomy and Political Interference

In 2020, the government reduced its stake in Thai Airways to below 51%, ending its status as a state-owned enterprise. This gave the airline greater autonomy to implement reforms without political interference. However, concerns about political influence resurfaced in late 2024 when a proposal to appoint two government officials to the rehab panel triggered protests from the workers’ union. Piyasvasti expressed ongoing concern about political interference, particularly after the airline exits the rehabilitation plan and authority returns to shareholders and the board. He emphasized the importance of a strong and unified management team that prioritizes the company's best interests.

Fleet Strategy and Route Expansion

Thai Airways is overhauling its fleet strategy by phasing out older planes to improve efficiency and cut costs. By the end of 2025, the airline will operate around 79 aircraft with an average age of about 10 years, with plans to grow to 150 planes by 2033.

The airline plans to concentrate on existing markets, return to markets it previously served, increase flight frequency, and expand to more destinations, especially in the Asia Pacific region. Europe is already considered a strong market.

Financial Performance and Stock Market Relisting

Thai Airways is now profitable, with nine consecutive quarters of profitability. The airline is preparing to relist on the Stock Exchange of Thailand (SET) in the third quarter of the year, a major milestone. The plan involves a small float with a lock-up period for strategic shareholders (about 55%). The goal is to attract more institutional investors after the listing, which may not be feasible until there is more free float after six months to one year.

The latest capital raising price was 4.48 baht per share, and the airline hopes to achieve a higher price upon relisting to signal positive market perception. However, the state of the Thai stock market will also influence the price.

Cost Structure Improvements

Chai Eamsiri, the CEO, discussed improvements in the airline's cost structure. Aircraft costs have been reduced by at least 50% through renegotiations with lessors and financial institutions. People costs have been cut in half, with the total FTE reduced from about 32,000 employees. Financial costs have been frozen during the rehabilitation plan, with debt repayment extended over an average of 12 years.

Leadership Style

Chai Eamsiri described his leadership style as potentially "bipolar," adapting to different situations. During the pandemic and the early stages of the rehabilitation plan, a strong, almost dictatorial leadership style was necessary to make quick decisions and prevent collapse. Now, he employs a more diplomatic leadership style to balance the interests of investors, customers, and employees.

Ambitions and Ranking

The CEO's ambition is to achieve a top 10 global ranking for Thai Airways after the airline receives new aircraft. He considers a top 5 ranking too ambitious in the near term.

Conclusion

The turnaround of Thai Airways is a complex and ongoing process. Key factors in the airline's rehabilitation include cost restructuring, fleet modernization, strategic route expansion, and improved management. While challenges remain, particularly regarding potential political interference, the airline is financially stronger and more confident than before the pandemic. The relisting on the Stock Exchange of Thailand represents a significant milestone in the airline's journey to reclaim its position as a leading carrier.