THAI finalises plan

The five measures are: the spinning off of four non-core units - cargo, catering, engineering and ground-handling services; a leave-without-pay scheme; the shutting down of offline sales and marketing stations; a halt to flying routes where the load factor is below 30 per cent; the restructuring of sister airline Nok Air; and a continued push to sell aircraft and delay new aircraft delivery.

The measures will be tabled for approval by the economic ministers today, said Wallop Bhukkanasut, chairman of THAI's executive board committee, who was in the Malaysian capital to attend an aviation conference.

"Our expenses must be cut by 15 per cent, or roughly Bt12 billion per year, for survival. For now, we've been able to cut expenses by Bt8 billion, so there is a lot more to be done to achieve the target," he said. "The revised plan should help the airline achieve this year's Bt7-billion net profit projection."

The airline posted a first-quarter net profit of Bt7.8 billion, but revenue should drop in the current and third quarters, due to the type-A (H1N1) flu outbreak.

A banker who requested anonymity commented earlier that if all cost-cutting measures were implemented, the airline would recover financially.

Wallop said that due to a series of negative factors, the national carrier expected to take two years to achieve a full recovery. Late this year, there should be a recovery in the tourism sector, but THAI's business growth is likely to be in the range of 3-6 per cent, well below the 10 per cent of previous years, he said.

Wallop said the spin-offs would benefit the carrier in that their combined workforce was nearly 10,000, but the units generates only 5 per cent of the carrier's revenue. In the future, each of these units must finance their investment on their own, and THAI will no longer shoulder any of their losses.

The airline will shelve the planned resumption of its cargo business, due to the global economic crisis, which has led to lower demand from both importers and exporters.

It is also likely to further delay the delivery of Airbus A380s, due to low demand. THAI has already made a pre-delivery payment of Bt300 million to Airbus and is negotiating with the aircraft-maker for an extension to the delivery deadline.

"Buying and selling aircraft is part of the five- to 10-year business plan. In the first five years, THAI expects to spend Bt30 billion to Bt60 billion on new aircraft," said Wallop.

A working committee is studying the legal consequences of THAI delaying or even cancelling purchase of the jumbo jets, as well as the effect of delivery on its liquidity.

To address its liquidity problems, THAI has tapped a Bt5-billion loan from the Government Savings Bank and is negotiating an additional Bt2.5 billion to Bt3 billion in credit from Bangkok Bank and Siam Commercial Bank.