Thai Airways Cleared For Takeoff But Needs Funding

June 22, 2021 Edward Dever

On 15 June 2021, Thailand's Central Bankruptcy Court approved THAI's rehabilitation plan. The plan administrators will now implement it.

THAI remains financially crippled by years of mismanagement and Covid-19's coup de grace. It is now seeking around Bt 50 billion (USD 1.6 billion) over the next three years from government and private financial institutions in order to stay afloat. Current cash reserves are not expected to last past 2021.

The acting CEO hopes THAI will complete plan implementation within five years. However, if THAI remains balance sheet insolvent in three years, it faces delisting by the SET. This issue may be resolved by the proposed capital increase under the Plan. There are also plans for debt to equity conversions but these relate mainly to accrued interest amounts and will not take place until year 4 of the Plan.

THAI's plan approval comes at a time when Thailand has been hit with a third Covid-19 wave with reported cases exceeding 3,000 per day. Bangkok remains in de facto lockdown. The Thai Prime Minister has declared that the country will open to foreign tourists within the next 120 days. Phuket will be the first province opened under the "Phuket Sandbox" model on 1 July.

THAI ticket holders owed refunds may be waiting some time. While ticket holders will be paid 100% of ticket value, the deadline for repayment is 31 March 2024. THAI may also offer travel vouchers in lieu of cash.

THAI rehabilitation plan summary

June 2021

The content of this publication is intended to provide a general overview on matters which may be of interest. It is not intended to be comprehensive. It does not constitute advice in relation to particular circumstances nor does it constitute the provision of legal services, legal advice or financial product advice.

Restructuring - When 1 + 1 No Longer Equals 2

December 4, 2020 Edward Dever

In any restructuring involving creditors, one of the hardest issues is value destruction.

A creditor's starting position will normally be getting their money back. While this does happen, often it is just not possible.

Value destruction in a business can occur for many reasons, including through:

- poor business decisions
- fraud (including related party transactions)
- external events such as civil unrest or Covid-19
- asset price deflation
- goodwill erosion
- changing market conditions.

One example of value destruction that comes to mind was where a company was lent USD 120 million by a group of banks even though they had only requested USD 90 million. So the company speculated on the stock market with the balance USD 30 million and lost it.

The banks were unhappy. Getting their money back was impossible. Arguably, the banks shared some blame in this instance as they had not monitored how the USD 30 million was used.

Where value destruction occurs, the prospect of creditors being made whole diminishes. A restructuring plan can be framed so that creditors participate in any recovery upside. Often, this is via a debt:equity swap or the issue of a convertible security interest.

How well a stakeholder fares in a restructuring may depend on their negotiating skills and whether the jurisdiction is more creditor or debtor friendly. Creditors are also subject to cram down under court approved restructurings.

It can be a challenge to get creditors to act realistically. It is why banks will often swap out the person who extended or managed the credit facility for a fresh face. This hopefully removes any emotional element from the restructuring.

December 2020

Thai Airways Rehabilitation Proceedings Recognised In Australia

August 31, 2020 Edward Dever

The recent Australian Federal Court judgment recognising the rehabilitation proceedings in Thailand of Thai Airways reveals several interesting facts regarding THAI.

- THAI's Royal Orchid Plus frequent flyer member details (1.398 million members) are not maintained in a single searchable data base. (Over 87,000 members are based in Australia.) This is extraordinary and likely due to a lack of foresight in upgrading the membership systems as membership grew. It highlights the difficulty of dealing with this group as part of the restructuring.

- In addition to Australia, THAI has sought and obtained orders for the recognition of the Thailand rehabilitation proceedings in Germany, Switzerland and Singapore. THAI has also sought recognition in Japan.

- Trading losses for the financial year to 31 December 2019 were the THB equivalent of AUD 567.7 million. Note this was before the onset of Covid-19 and the shutdown of flights.

- THAI's assets in Australia comprise primarily leased assets and cash.

Didyasarin v Thai Airways International Public Company Limited [2020] FCA 1154

August 2020