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.

Creditors Approve THAI's Rehabilitation Plan

May 30, 2021 Edward Dever

On 19 May 2021, Thai Airways creditors approved the rehabilitation plan at an adjourned online creditors meeting.

According to THAI's SET Notice, creditors holding over 91% of debt attending the meeting and voting approved the plan, including three amendments proposed by the planner, Bangkok Bank and the Federation of Savings and Credit Cooperatives of Thailand Limited

On 28 May, the Central Bankruptcy Court set a hearing date on 15 June to consider the plan and two objections raised by creditors.

The plan, as approved by creditors, appears to be more of a standstill arrangement with creditors deferring repayment in the hope that THAI's business can be revived and no hard decisions implemented to repair the balance sheet.

THAI faces the prospect of delisting from the SET if it is unable to fix its balance sheet insolvency within three years.

It is also unclear how THAI will fund the cash required to effectively restart the business.

Thai Airways says court hearing on business restructuring moved to mid-June

May 2021

Government Squabbles Ahead of THAI Creditor Vote

May 10, 2021 Edward Dever

Concerns that Thai Airways is just a toy for members of the Thai Government to argue over are reinforced by claims that the Finance Ministry will not participate in any recapitalisation under its rehabilitation plan.

The current argument centres around whether THAI should once again become a state enterprise with the Ministry of Finance increasing its shareholding above 50%.

The reduction below 50% prior to THAI entering rehabilitation proceedings was largely an exercise in shuffling the excess shareholding to satellite Government-linked funds.

The Finance Minister appears to be in support of his Ministry regaining majority control of THAI. The head of the State Enterprise Policy Office (SEPO) is taking the contrary view, arguing that THAI is effectively a money pit and pouring more funds into it cannot be justified to taxpayers.

THAI's plan was scheduled to be voted on by creditors at a meeting on 12 May. Creditors seemed likely to support it given the prospects for THAI if the plan is rejected. However, the vote has now been delayed until 19 May.

Govt 'won't back' billion-baht THAI cash injection

May 2021

Thai Airways - Negative Equity Until 2030

March 29, 2021 Edward Dever

Thai Airways is in the midst of its rehabilitation plan with a creditors' vote on the plan scheduled for 12 May 2021.

THAI's balance sheet insolvency has forced it to make a further disclosure to the Stock Exchange of Thailand as it faces delisting.

In their SET notice on 26 March 2021, THAI indicates that it will remain balance sheet insolvent until 2030. Given that THAI has a three year period to remedy its negative equity position, it admits that the Company may be delisted in due course from the SET.

THAI also gives further insight into its rehabilitation plan, disclosing that it expects a capital increase and creditors will have the option of a debt to equity swap.

It is not clear whether the Thai Government will participate in any capital increase or debt to equity conversion in order to maintain its shareholding in THAI,

Also unclear is whether creditors will accept equity in what may become a non-listed entity.

Meanwhile THAI is disputing around half of its liabilities by claiming that these amounts relate to future expenses and were incurred after the airline entered rehabilitation proceedings.

THAI is disputing around 192 billion baht (USD 6.3 billion) claimed by 48 lessors including BOC Aviation Ltd and SMBC Aviation Capital Ltd, and another 33 billion baht (USD 1.1 billion) that Rolls-Royce says it is owed for maintenance services.

The Thai Bankruptcy Act provides for disputed claims to be resolved by the Official Receiver with a right of appeal to the Bankruptcy Court for any aggrieved party.

THAI - SET Notice - 26 March 2021

Thai Airways disputes $7.4bn of aircraft lessor claims

March 2021

Is The Thai Airways Rehabilitation Plan A Missed Opportunity?

March 3, 2021 Edward Dever

Media reports indicate that THAI's plan submitted on 2 March 2021 to the Bankruptcy Court in Bangkok does not deal with its massive debt burden. The plan apparently contemplates increasing THAI's debts.

THAI has around THB 410 billion (USD 13.5b) in debt.

It needs to raise around THB 50 billion (USD 1.65b) over the next two years.

This may be achieved through “borrowing, investment or debt to equity conversion” according to THAI. (Any debt/equity conversion would not raise new funds.)

The plan does not require haircuts or debt reductions, apparently out of fear that creditors may not approve the plan. Instead, THAI has asked for a three-year debt moratorium after which the debt will be repaid.

THAI's plan is to create a three year debt time out during which it will attempt to turn around the airline. It plans to achieve this via four steps including making it the airline of choice, expanding services, upgrading digital capabilities and improving operational and cost efficiencies.

The lack of balance sheet reform under the plan will remain an IED with a three year fuse. Worse, it looks like a missed opportunity.

There are two main reasons for using court-sanctioned rehabilitation proceedings in Thailand:

1. To protect a company from creditors while it restructures.

2. To implement balance sheet reform using the Bankruptcy Act's plan voting procedures to cram down creditors.

No doubt there are political issues at work but not using the Act's provisions to implement balance sheet reform does seem like a missed opportunity.

THAI's financial woes preceded Covid-19 and it seems unlikely that THAI will have such a change in its fortunes that, in three years, its debt burden becomes sustainable.

THAI has long been burdened by its vast array of aircraft and engine types so plans to reduce its types of aircraft from twelve to five and types of aircraft engines from nine to four are a step in the right direction.

THAI's creditors will meet on 12 May 2021 to vote on the plan.

Thai Airways seeks to raise B50bn

THAI - SET Notice Re Plan

March 2021

When Reverse Ghost Employees Emerge On A Restructuring

February 25, 2021 Edward Dever

Reports have emerged that Thai Airways has allegedly suffered fraud by employees claiming funeral benefit payouts for themselves while continuing to work for the company.

Since 2013, this alleged fraud is estimated to have cost THAI around USD 500,000.

A number of years ago, I was involved in a restructuring which was almost derailed at the 11th hour when it became apparent that a relative of senior management was still drawing a salary from the company five years after their death.

It is very odd that THAI's Human Resources Department does not cross check its payroll against employees who have "died" with resulting payouts by the Savings Cooperative for Employees of Thai Airways.

It is worth remembering that, apparently, THAI could not even provide a single comprehensive list of its frequent flyer program members as it entered formal rehabilitation proceedings.

Thai Airways employees accused of faking death to claim funeral payout

February 2021

When Equity Ranks Ahead of Debt

October 9, 2020 Edward Dever

One of the more interesting aspects of Thai Airways rehabilitation will be the issue of debt to equity conversions.

THAI's debt load is not sustainable. It was not profitable before Covid-19 hit and any restructuring will necessarily involve dealing with the debt burden.

In many of the larger past restructurings in Thailand, an informal rule applied - equity ranks somewhere above unsecured debt and often above secured debt. While contrary to Thai law, it is a principle adopted by numerous significant family-owned businesses.

In one meeting, a business owner tossed the keys to his steel mill across the table towards creditors seeking debt to equity conversions, simply saying much to their horror: "Ok, you run it then." They were probably the keys to one of his cars but the point was made.

THAI is controlled by the Thai Government. While the Finance Ministry recently reduced its stake so THAI was no longer a state enterprise, the shares were shuffled sideways to a government-related fund.

It is unlikely the Finance Ministry will agree to dilute its stake in THAI as part of the rehabilitation plan. THAI as a national airline will be seen as an important part of Thailand's image with the Government in firm control for better or worse.

October 2020

Thai Airways Works On Easier Option For Ticket Holders Who Requested Refunds

June 26, 2020 Edward Dever

Thai Airways has indicated that it is trying to create a solution to the prospect of over 300,000 ticket holders who have requested refunds needing to file debt repayment claims in Bangkok.

The Thai Bankruptcy Act provides that creditors are required to file claims within one month of publication of the planner's appointment in the Government Gazette. Failure to file a claim generally means all rights are lost.

THAI has apparently discussed this issue with the proposed planner and expects to announce its approach once the planner is appointed, expected in August.

Hopefully good news for THAI customers who have requested refunds, particularly those based outside Thailand who faced the prospect of needing to file claims with the Bankruptcy Court in Bangkok as well as have their documentation appropriately notarised and legalised.

THAI has also clarified that Royal Orchid Plus frequent flyer members with points balances do not need to file debt repayment claims in relation to their points. Also, ticket holders whose tickets remain unused do not need to file claims. Tickets remain valid for use in the future.

Clarification regarding the notification of the Central Bankruptcy Court, Thailand (THAI Business Reorganization)

June 2020

Will THAI's ticket holder refund nightmare end?

June 9, 2020 Edward Dever

It took several days following THAI's rehabilitation filing for queries about the fate of ticket holders and for Sections 90/12(9) and 90/27 of the Thai Bankruptcy Act to surface.

Section 90/12(9) freezes all debt payments other than those in the ordinary course of business from the date the Court accepts the petition, with these amounts included as part of the plan voted on by creditors. Section 90/27 deals with applications for repayment of debt in rehabilitation proceedings.

THAI should have been out in front of this issue as the loyalty of its customers is key to its survival. Instead, some media reported that THAI hoped to return the money within 6 months. Others reported sources within THAI saying that ticket refunds may never be made.

Contrast this with LATAM Airlines' dedicated website and clear details for ticket holders - LATAM website

THAI estimates it owes Bt 24b (A$1.1b) to ticket holders. It is not clear how these amounts will be treated. Ticket holders who have requested refunds are likely to be considered creditors who must file claims or lose their rights. Those holding advance tickets or vouchers for future travel may be considered ordinary course of business and not need to file claims.

However, it is not yet clear and ticket holders remain in the dark.

Group demands help for troubled THAI customers

THAI ticket refunds at risk under rehab

THAI claims it owes Bt24 billion in unused tickets

Thai Airways says it cannot honour ticket refunds for now, possibly forever

UPDATE: THAI has released a proposed restructuring timeline.

It is odd that they haven't included the deadline for creditor claims in this timeline.

Meanwhile, THAI has apparently approached courts in Switzerland, Germany and Japan to prevent the seizure of aircraft. US is apparently next on the list.

It is hard to know how aggressive aircraft lessors are at the moment but, given CovId19 issues, it would be surprising if they wanted yet more repossessed aircraft to deal with and store. Also, isn't most of THAI's international fleet grounded in Bangkok? Apart from the odd international repatriation flight.

And more comments indicating ticket holders may have to wait up to a year for refunds.

THAI swoops to protect planes from seizure

Thai Airways: Passengers who require a refund for the ticket must wait until the rehabilitation plan is completed in 1 year. (Thai)

THAI rehabilitation may take up to 7 years: legal advisor

June 2020

What Next For Thai Airways?

May 21, 2020 Edward Dever

Rumours circulated in Thailand earlier this week that Thai Airways would file for bankruptcy.

This claim was denied by THAI which is preparing a rehabilitation plan for Government approval. More likely is that THAI may enter formal rehabilitation proceedings under the Thai Bankruptcy Act

Prior to 1998, liquidation was the only option under the Bankruptcy Act. Proceedings involving large companies were about as rare as a black kookaburra. In 1998, Chapter 3/1 was added providing a form of rehabilitation proceedings similar to US Chapter 11.

It was subsequently confirmed that THAI will enter formal rehabilitation proceedings under the Thai Bankruptcy Act following Cabinet approval.

This will be the highest profile case through the rehabilitation proceedings introduced in 1998 and certainly the largest case since the Asian Economic Crisis.

From the media reports, it seems that the Ministry of Finance will reduce its majority shareholding as part of the restructuring although this could just be shifted to another Government fund. THAI will no longer be a considered a State Owned Enterprise with the employees' union to be disbanded. It is not clear how THAI will be funded during the rehabilitation.

It also not clear how existing ticket holders will be treated.

Under the Thai Bankruptcy Act, all amounts owed at the date of the rehabilitation order, are normally quarantined and creditors must file claims for these amounts.

Don't discount authorities coming up with a solution which treats ticket holders fairly that doesn't strictly comply with the Bankruptcy Act.

THAI carried around 19.4m passengers in 2019 which is an indicator of the complexity of dealing with ticket holder creditor claims.

THAI - Cabinet gives nod to THAI rehab
https://lnkd.in/gsjk2EP

May 2020