Eight years after the first, tentative step towards the privatisation of Thai Airways International, the second phase continues to slip

Andrzej Jeziorski/BANGKOK

Thai Airways International is approaching the end of an era - not just because of a much-delayed plan for its partial privatisation, but also because of the imminent departure of its president.

Thamnoon Wanglee, 61, is retiring by the end of September after seven years in office, having guided the airline into the Star Alliance as a founder member, and faced the painful consequences of Asia's financial crisis of the late 1990s. Thai's net profits have grown consistently since the crisis hit in 1997, from 2.8 billion baht ($70 million) in the financial year from October 1996 to September 1997, to 5.3 billion baht in 1998-1999. In fact, Thai has been consistently profitable for the past 35 years.

But when Thamnoon leaves the airline, it will still be a 93% state-owned entity, as it has been since 1992 when a new issue of shares was first listed on the Securities Exchange of Thailand. Before that, the airline had been fully state-owned since 1977.

The Thai Government has been talking for about two years of selling a further 23% stake, reducing its shareholding to the legal minimum of 70%. The current plan is to issue 300 million new shares and sell a further 100 million held by the Ministry of Finance.

To guide the privatisation, the State Enterprise Policy Commission has appointed a consortium of advisers, comprising Credit Suisse First Boston, Dresdner Kleinwort Benson, Jardine Fleming Thanakom and Asset Plus. The consortium is assigned to conduct studies and make recommendations on the details of the process.

The planned pre-privatisation road show, aimed at promoting the share sale, has been postponed to November or December. The official reason for the delay is a drop in the carrier's recent low share price.

"If the market is like this, [proceeding with] it [the road show] does not make sense," says Thamnoon. "We are now below 40 [baht per share], which is not healthy." In May, Thamnoon expressed hope that the road show would take place in September, stopping off in Japan, Switzerland, the UK and the USA. This target was already delayed from a previous plan to hold the show in July.

Thai will determine its offering price from bookbuilding during the tour, but is understood to be hoping to sell shares to the public at 60 baht each. The carrier says the privatisation will "enhance Thai's long-term efficiency, strategic position and valuation", and is also intended to boost its capital base to 17 billion baht.

Earlier privatisation deadlines have been missed several times, but the momentum for change increased in March with cabinet approval for the 400 million share sale. Under the plan, the public would be offered 8% of the carrier, with 5% reserved for employees, and the remaining 10% stake offered to a strategic partner or partners. September will be the latest deadline for the acceptance of bids from potential strategic partners. A shortlist of "four or five" bidders is expected to be drawn up in November, and a selection will be made once the public offering is completed.

The offer of a strategic partnership looks set to draw bids from a number of carriers interested in establishing or strengthening their presence at the south-east Asian hub of Bangkok. It will certainly attract a joint bid from fellow Star Alliance founders Lufthansa, United Airlines and SAS, which insist they want to keep Thai within the airline grouping despite speculation that the carrier may go elsewhere.

The airline is understood to have been deeply unhappy with Singapore Airlines' (SIA) entry into Star. SIA is Thai's strongest rival in south-east Asia, and its Changi Airport base is, like Bangkok, a popular regional hub. Thai management fear that bringing SIA into Star would eat into the benefits Thai reaps from its own membership.

Thai Airways alone operates domestic and international flights to 71 destinations in 34 countries, while the ever-growing Star Alliance in total covers nearly 800 destinations in more than 110 countries. Asian regional services are Thai's "bread and butter", says Thamnoon, and Star membership feeds many passengers from other Star carriers into Thai's network. But now that SIA is providing an alternative regional hub within Star, some of these passengers are being siphoned off from Bangkok to Changi.

Although Thamnoon puts a brave face on the issue, and talks have been taking place since April to iron out differences between the two carriers - including discussion of a joint Bangkok-Singapore shuttle service - SIA's Star membership has raised doubts over Thai's future as a Star partner. Thamnoon says the privatisation advisers will now "have to itemise and quantify the benefits of the Star Alliance and the influence of Singapore Airlines" in assessing bids from potential strategic partners.

Both oneworld and the Delta Air Lines/Air France-led SkyTeam alliances have expressed an interest in the privatisation. Although Thamnoon has said Star would be Thai's preferred strategic partner, he stresses that the bidding must be open.

"If you want a partnership with any company besides the public offering, you need to go through the Joint Ventures Act. Various government ministers have to be involved - you have to open [the bidding] to all."Thamnoon says price will not be the overriding issue in the selection, with matters such as network compatibility also dictating who would be the most suitable partner.

The degree of management influence the new partner would have in Thai is yet to be resolved. "We still have to draft the terms of reference," says Thamnoon.

During the privatisation road show, potential investors will be presented with Thai's latest five-year plan, which includes a fleet strategy. Thamnoon feels that the Thai fleet is excessively diverse, and is implementing a plan to rationalise to six aircraft types, requiring six different type ratings among cockpit crews. "We are thinking of disposing of the [Boeing] MD-11 within the next couple of years," he says, adding that this is still subject to board approval.

Thai's current operational fleet comprises 74 aircraft: 14 Boeing 747-400s and two 747-300 Classics, which require separate type ratings; eight Boeing 777-200s and four 777-300s, which share a common type rating; four MD-11s; 11 Airbus A330-300s; 18 A300-600s; 11 Boeing 737-400s; and two ATR 72 turboprops. Two A300-B4s and one A310-200 are grounded, and buyers are being sought for these aircraft. Five A300-B4s and two ATR 42s which were removed from service in financial year 1999 have been sold. One further A310-200 was lost in the still-unexplained crash at Surat Thani in December 1998.

Thamnoon says Thai had planned to phase out its remaining ATRs by the end of this year, but has decided to keep them on to serve domestic routes. The carrier is awaiting delivery of a 12th A330-300 this month, and two more 777-300s in October and November. The board has also approved an order for two more 747-400s, subject to government approval. This is Thai's first new aircraft order since 1996, before the Asian financial crash.

Also included in the plan will be "heavy investment" in the New Bangkok International Airport at Nong Ngu Hao, which is due to open in early 2004, taking over from the crowded Don Muang Airport, which is marked for closure in 2005. Thai is expected to invest 20 billion baht in a terminal and other facilities at the airport.

Other targets for the next five years could include a further cut in the government's stake in the airline, although this would require a revision of legislation and could arouse labour union resistance. "They are not against it because we told them that we would stop at 70%," says Thamnoon, but this leaves open the possibility that Thai could push for a further round of privatisation, depending on the market situation and pricing, as well as union resistance. These issues, however, will be in the hands of Thamnoon's successor, who has still not been named.

One of the people touted for the position is Anusak Intharaphuvasak, who heads state-owned Thai Maritime Navigation, although his candidacy is thrown into doubt by current National Corruption Council investigations into a company linked to him which had financial dealings with former interior minister Sanan Kachornprasart.

Also said to be a candidate is Korn Chatikavanij, managing director of Jardine Fleming Thanakom, part of the advisory consortium in Thai's privatisation. Korn has told local journalists he "might be interested" in the job.

As for Thamnoon, the law requires that he take a minimum two-year break from the aviation industry after his retirement. Thamnoon says his retirement plans "depend on the political situation". With his charitable and sporting links, as well as his position as chairman of the King Rama IX foundation, it is certain that the former Thai Government senator will not be inactive.

Source: Flight International