The Ministry of Finance has announced its intention to bail out Thai Airways International (TG), our national carrier, due to effects from the COVID-19 crisis. With travel demand dropping significantly, most airlines around the world have decided to cut down on their capacity, if not stop flying entirely.
Details of the bailout have not been made, however social media reactions have been loud and clear, questioning the government’s priorities during these difficult times. The health sector must have priorities, not the aviation sector, they say.
I have always been a big fan of TG, but recently it has been a love-hate relationship. At times, I feel the only way to make Thai Airways better is to let it go bankrupt and start all over. But during this crisis, the survival of the national carrier is also necessary.
Empty cabins are not a result of mismanagement, but of an unprecedented turn of event. COVID-19 spreads through the movement of people. To contain the spread of the disease and save lives, restricting travels and banning flights are necessary measures.
As much of the world is literally under quarantine, airlines can no longer cover their fixed costs. Even the world’s most well-managed airlines such as Cathay Pacific, Qatar, Lufthansa and Singapore Airlines are seeking government assistance. .
TG needs a bailout
Airline bailouts tend to happen following every economic crisis, and the public are never happy about it. This past week, the US government granted USD25 billion as part of a stimulus package for airlines to pay salaries to their staff.
Unlike its global peers, many US airlines have enough liquidity to last up to a year without revenue. Many have consistently channelled 90% of their profits to buy back shares from investors to push their share prices up. Yet, they are still asking the government, instead of their shareholders, to pay for their staff.
The airline bailout in the US is particularly interesting, because it is a grant (free taxpayer’s money), not a loan, but with some strings attached.
First, airlines won’t be able to pay dividends or perform stock buybacks until September 2021. Second, airline executives who make more than USD425,000 annually (yup, you read it right) may not receive salary increases until March 2022.
To many people, this isn’t a strong enough set of rules to ensure that taxpayers’ money will go to those who need the most help: the average airline workers. As well, it may also create a bad precedent for future bailouts.
But the aviation industry falls into the category of “too big to fail.” The movement of people (or traveling) is crucial to every economy and aviation is in the business of moving people. Therefore, airlines are instrumental to national economies. This is why governments around the world are quick to step in.
As a country that relies heavily on the tourism sector, TG will play a crucial role in Thailand’s economic recovery. The bailout is not for any sentimental reasons, it’s a practical one. The economy won’t recover, if tourism doesn’t recover. Tourism will suffer, if the nation’s biggest airline falls apart.
What does this mean for shareholders? We don’t have to worry much, no shareholders of TG make money from its stocks anyway.
TG needs an overhaul
Last month, TG announced a net loss of THB12 Billion in the previous year. A week later, Thai Airways’ president, Sumeth Damrongchaitham announced his resignation saying that “those in power” told him “his mission was over.” Reports are saying that it will need liquidity at some point this year to stay afloat.
Like many Thai state enterprises, TG is often interfered by powerful figures from politicians to generals. According to a source, even though the Ministry of Finance owns 51% of the company, powerful people from the Ministry of Transport are running the show.
The airline industry is complicated and multidisciplinary. Top management of the company should be those with extensive skills and experiences within the airline industry. If there is no qualified person in Thailand, they should look abroad.
Malaysia Airlines once hired Irishman Michael O’Leary to turn its company around after the two plane crashes. If the Thai national football team can hire a foreign superstar as the head coach, why can’t Thai Airways look abroad for superstar management?
Meanwhile, the names of TG’s Board of Directors read like they belong to a social club for retired air force generals and friends.
If the boardroom is quite the mess, then the hangars are as well.
Emirates flies 250 aircrafts with only two types (A380s and 777s). Singapore Airlines will soon fly 180 aircrafts of four types (A380s, A350s, 777s and 787s). TG operates 80 aircrafts of six types (A380s, A350s, A330s, 777s, 787s and 747s) that are inconsistent in seat models and engines, which means maintenance and operation costs are through the roof. .
If the hangers need streamlining, so does the payroll.
TG’s 2018 Annual Report shows 22,054 employees. Singapore Airlines, with a hundred more planes to fly in the same year, has 14,729 employees.
Here are some more questions, albeit personal ones:
Why is the newly launched mobile application so ugly and useless? Why must an itinerary change be done only through the call center? Why do I keep getting a surprise switch from one aircraft type to another? Or why is my trip on TG almost two times the price of Qatar?
Thai Airways will make it through the COVID-19 Crisis, thanks to taxpayers. But it will continue to suffer a crisis in mismanagement at the further expense of taxpayers, if it’s not restructured from top to bottom. If the right people aren’t put in the right jobs. If it continued to be exploited by politicians and generals.
It would be criminal to bailout TG, while allowing inefficiencies to continue. In crisis, there’s opportunity. Take this opportunity to reengineer our national carrier.