The State Enterprise Policy Committee (SEPC), chaired by the Prime Minister General Prayut Chan-Ocha, announced Wednesday that it agreed to allow the Ministry of Finance to guarantee a loan worth 50 billion baht loan to Thai Airways International Plc (TG).
This committed amount, previously slated to be at 70 billion, would be used as a short-term lifeline for the airline up until the end of the year. The airline shall use this period to negotiate with local creditors, while coming up with a plan to downsize and restructure its business.
The committee also noted that the guarantee would be gradually released in tranches, not in one big lump sum, to encourage TG to meet its restructure plan deadlines.
But it was reported that more were discussed behind closed doors, as participants not directly involved were asked to leave the room. First reported in detail by the Bangkok Insight, but also validated separately by Reuters, the source within TG claimed that the proposed rehabilitation plan exists and it extends beyond emergency loans.
TG to become a HoldCo
According to the source, the proposal will require TG to change its role drastically. It should become just a holding company (commonly referred to in the Merger & Acquisition world as HoldCo) and only own and manage key strategic decisions at an arm’s length. It would also have to transfer all of its staff to the soon-to-be created subsidiaries.
This is great news for those who despise the government’s interference of TG. While there’s no guarantee that powerful people won’t find their ways into meddling with the new TG, it would be considerably much harder to do so with the newly introduced check-and-balance. What used to be interdepartmental transactions will effectively become contracts between independently-run companies.
Transforming an airline into a HoldCo is nothing new. After a massive consolidation within the airline industry over the past decade, many legacy airlines are now operating as part of airline holding companies.
One example is British Airways, which was merged with Iberia, a Spanish airline, and formed a new holding company called International Consolidated Airlines Group (IAG). The same goes with Air France-KLM Group, which as the name suggested, was a result of a merger between Paris-based Air France and Amsterdam-based KLM.
An airline holding company also has an added flexibility to take-in profits through selling its subsidiaries. On the flip side, it may one day choose to grow by acquiring another airline, while optimising shared resources such as aircraft maintenance through other related subsidiaries.
Introducing the Fab Five
Also revealed within this rehab proposal, TG would have to divide its businesses into at least five independently-run business units or subsidiaries. Each of these subsidiaries could have different ownership structures (with TG HoldCo holding the majority stake), depending on whether they could find strategic investors or not.
The five subsidiaries are:
- Thai Smile Co., Ltd is currently a separate light premium sister airline. In this plan, it will inherit all of TG’s core airlines operations, employing pilots and flight attendants. It will most likely retain the current Thai Airways main brand.
- Technical Services Co will handle fleet and equipment maintenance and employ former TG’s engineers and technicians.
- Cargo Services Co will manage freight services.
- Ground Services Co will operate luggage handling, plane push back and passenger transport.
- Catering Co will cater to related services such as on-board meals and operation of lounges.
TG may choose to wholly own some of these subsidiaries, such as Thai Smile and Catering Co, as long as they are highly profitable and can provide top-notch service without needing external expertise. For some other subsidiaries, having a partner may help improve efficiency.
One of the ideas proposed is for the Airports of Thailand Plc (AOT) to become a joint venture partner with TG, to own and operate the new Ground Services Co.
Of-course, each of these subsidiaries are free to independently grow their businesses and offer their services to other airlines that may operate out of existing TG hubs.
Less employees, less benefits
Given that downsizing is a vital component to the rehab plan, not all TG staff would be rehired or transferred to the new subsidiaries. The new company would aim to have similar headcount to its global peers. So, the first plan of action is to offer a voluntary layoff package for eligible staff.
On the other hand, staff will be offered new contracts which will no longer include a tax cushion (yes, TG currently pays income tax for some staff!). The allegedly overpriced, overtime compensation and flying benefits would also be revised to be comparable to industry standard.
No longer a state controlled state enterprise
The source claimed that discussed behind closed doors was the possibility to reduce the state’s stake in TG, to declassify it as a state enterprise. Even though the airline is publicly listed today, the Ministry of Finance owns 51% of the total shares.
If this were to go ahead, the Ministry of Finance would have to sell 3% of its TG shares to a private entity, hence leaving 48% to be held by the state. The new TG, no longer state-controlled, will enjoy greater flexibility to run its day-to-day business. It would no longer need government agencies’ approval to procure a new aircraft.
But are we daydreaming?
This rehab proposal sounds so good that it raises the question: Will it ever be embraced by the stakeholders who obviously will lose out? Many TG Union members are already voicing their discontent on the union’s own Facebook page.
“We are One TG. We must not let them break us into five” one user said.