Wednesday, July 16, 2008

Thai Airways: Not at all smooth as silk

The recent disarray arising from the removal and reinstatement of Apinan Sumanaseni as president of Thai Airways International (THAI), all in a matter of hours, is only the tip of the iceberg.

The troubles plaguing the 48-year-old national carrier and its failed attempts to retrieve its past glory as one of the world's best airlines continue to grow more serious.

The latest problem took place on June 26, when THAI's board, chaired by Chaisawasd Kittipornpaiboon, decided to strip Mr Apinan of management responsibilities, citing his poor performance, and named executive vice president Norahat Phloiyai to the job.

But soon after, Mr Chaisawasd, who is also permanent secretary at the Transport Ministry, overturned the 15-member board's decision and reinstated Mr Apinan after meeting the airline's labour union and representatives of the airline's pilots, who objected to the change.

The union and pilot representatives insisted that the original decision to sack Mr Apinan, who was appointed in May 2006, was politically motivated, a charge the chairman denied. Mr Norahat was not regarded as an ideal replacement due to his close connections with deposed prime minister Thaksin Shinawatra, who is exerting his power through his nominees - the Samak Sundaravej administration.

The issue of political meddling is not new to THAI and again raises the question of good governance at various state-controlled enterprises. Political interference is one chronic problem which has never been seriously addressed and seems to be tearing the airline apart.

Among others are mismanagement, internal conflict, the feeling of growing mistrust within the airline and eroding professionalism.

As a perfect storm looms large on the aviation industry's horizon as a result of skyrocketing fuel prices, a slackening of air traffic demand worldwide and a slowing global economy, it will be extremely difficult for THAI to weather this downturn by disregarding the need to restructure.

An extensive structural reform at THAI is more urgently needed now than ever before, as the current situation is far more disastrous. Recent developments show an alarming sign, reaffirming the prognosis of a very bleak future for the aviation industry.

In addition to earlier decisions by United Airlines and Qantas to reduce routes, ground aircraft and retrench staff, American Airlines has recently announced that it will soon lay off up to 25,000 employees and ground hundreds of aircraft and slash flights.

The International Air Transport Association (IATA), which represents some 240 airlines, has warned that the industry is bracing for a huge storm and could potentially lose up to $6.1 billion, if crude oil prices remained at an average of $135 a barrel, as they are now, for this year.

A painful reform will have to be undertaken quickly, even in the face of strong resistance, to allow THAI to stay in business - though losses will inevitably be mounting - instead of going bust altogether. Fundamental changes should start by reducing state-ownership in THAI, to about 30% from nearly 70% at the moment, through another stage of privatisation. Such a move would pave the way for the airline to transform from its cumbersome state enterprise structure, allowing it to embrace a sound corporate management system and good governance. That structural change will force THAI to operate as a real business enterprise should operate, becoming more efficient, ridding itself of excessive direct state and political intervention and control, and being given greater commercial freedom. All this makes good business sense.

Under the new structure, the airline's board line-up will need to be shaken up as well. Instead of being appointed solely by the government, it should represent the real shareholders.

THAI no longer needs political appointees with questionable competence to run the airline, but a real professional management with vision, dedication and profound knowledge of the airline industry. A revamped structure will force the airline to become leaner, more productive and better prepared to meet future challenges which are likely to get tougher and tougher. It is a well-known fact that the airline is over-staffed, partly because THAI was forced to hire many people who have connections with authorities, politicians and influential people, though it actually has no jobs for them. And there are hundreds of them.

Former top THAI executives reckon that the airline can easily shed one-third of its 26,000 employees without affecting its operations.

Drastic changes and a willingness to re-invent are key to THAI's survival.

Boonsong Kositchotethana is Deputy Assignment Editor (Business), Bangkok Post.

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