THAI bid to stave off cash-flow crisis

Corporate August 15, 2014 01:00

Sasithorn Ong

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Thai Airways International's board yesterday approved an urgent financial plan to seek more funds and sell aircraft and property in a bid to stave off a cash-flow issue.

The action is part of the national carrier’s 2014-18 rehabilitation plan. 
National Council for Peace and Order deputy chief Air Chief Marshal Prajin Juntong, the head of economic affairs under the junta, is THAI’s chairman. 
A source said the airline had determined it was heading towards a cash-flow problem from this month onwards based on the worst-case scenario that projected earnings this year would be lower while expenditure was unchanged. 
For this year, the source said the carrier expected to post Bt7.59 billion in earnings before interest, taxes, depreciation, and amortisation (EBITDA) on total revenue of Bt195.02 billion.
Although it still had room to borrow Bt12 billion from financial institutes, as part of a total committed revolving credit line of Bt19 billion, that was insufficient. 
“THAI needs to maintain a minimum cash requirement of Bt8 billion a month,” the source said. “If the financial situation is not turned around, the company’s cash flow for operational activities after August will be lower than Bt5 billion.” 
The source said the carrier was in a hurry to improve its cash management and would seek more funds and sell aircraft, buildings and land to do that. 
Prajin said THAI would borrow Bt1 billion from Standard Chartered and between Bt5 billion and Bt7 billion from the Government Savings Bank (GSB) in a bid to maintain its ratio of cash flow to revenue at 15 per cent. 
He said the carrier also plans  to raise Bt27 billion by the second half of next year. THAI would then ask the Finance Ministry for the rest of the funds it needed. 
A major chunk of the raised money would go back to Standard Chartered and GSB. 
The board also proposed to defer the pre-delivery payment for aircraft and rent planes instead of leasing them. 
Prajin expects THAI will post a net loss of not less than Bt12 billion this year – the same level as last year.
“But the loss could reach Bt20 billion if the carrier fails to achieve its financial plan,” he said.
THAI aims to cut its expenses by Bt4 billion and increase its revenue by Bt3 billion this year and next.
The airline’s acting president Siwakiat Jayema said that as a result of the rehabilitation plan, revenue should be boosted from the current third quarter. 
He said new bookings from key markets such as Europe, Japan and India were returning significantly, though Australia was still very slow. 
The airline earlier announced its plan of focus on high-potential markets, boosting online sales, and premium and super-premium passengers. Its subsidiary Thai Smile will tap the light-premium market, and another subsidiary, Nok Air, will go after budget travellers.
THAI expects EBITDA to be about Bt30 billion in 2015.
As part of cost-cutting measures, Siwakiat said 6,000 of the airline’s 24,000 employees would be retrenched over the next five years, or an average of 1,200 per year. It aims to cut 1,500 in the first year. The target groups for first year include 300 employees with health problems and 600 who are close to retirement.
Siwakiat said the long-term plan for the purchasing of aircraft was also discussed yesterday. The airline aims to sell old planes and replace them with new ones.
By 2020, it expects to have 122 aircraft in its fleet, up from 100 at present.