NokScoot has suffered the ill-effects of Covid-19, as did Thai Airways; its fate, however, is very different from the flag carrier’s.
Thai Airways could emerge from rehabilitation with a significant makeover, but looks likely to survive. On the other hand, the board and shareholders of NokScoot, the joint venture between Thailand’s Nok Air and Singapore Airlines’ subsidiary Scoot, saw no way forward and voted to liquidate the low-cost carrier.
Scoot – a 49% shareholder in NokScoot, and itself the low-cost arm of Singapore Airlines Group – said in a 26 June statement that NokScoot had never recorded a full-year profit since its inception in 2014 as it faced difficulties growing the network and an intense competitive environment, problems exacerbated by the pandemic.
“Consequently, Scoot does not see a path to recovery and sustainable growth for NokScoot,” it added. “In considering other possible alternatives, Scoot also offered to sell its 49% stake in NokScoot to Nok Air for a nominal sum of Bt1. This was not taken up.
“We regrettably had to then make the joint decision to move ahead with the liquidation.”
THE LIQUIDATION PROCESS
NokScoot said on 20 July that it is in the process of registering the appointment of its liquidators with Thailand’s Department of Business Development, as required by Thai Law. It expects to complete this step by 29 July.
“The liquidators appointed by NokScoot’s shareholders shall commence their duties regarding settlement of any of NokScoot’s affairs including the arrangement of all NokScoot’s rights, responsibilities and assets after the registration date,” the airline said, adding that the liquidator would provide further details on the creditor claim process after the liquidator has been appointed.
Alan Polivnick, a partner at Watson Farley & Williams in Bangkok, explains that the liquidators, who are typically the directors of the company, will be appointed. In turn, they will appoint an accounting firm or similar firm to assess the assets and liabilities and work out how to get some return to the creditors and settle as many of the debts as possible.
“It can take some time to do this. Generally, the more assets and liabilities a company has, the more complicated it is,” Polivnick says.
Since NokScoot has only three shareholders – Nok Air (49%), NokScoot management (Pueannammmitr Co) (2%) and Scoot (49%) – the process may not be too complicated, he says. The “key assets” in the business are the airline’s fleet of seven Boeing 777-200ERs, but these are all leased from Scoot’s parent Singapore Airlines and are already in the process of being returned.
“Bearing in mind this was an airline set up by two airlines, I don’t know that NokScoot had its own equipment: some of it was probably leased or borrowed from Nok, or Scoot, or in combination, or it was outsourced anyway; for example, ground handling,” says Polivnick.
“So they wouldn’t necessarily have their own tugs or stairs and all of those things. They would simply have an agreement with somebody, so the liquidators would need to terminate those contracts and obviously negotiate exit from those contracts.”
One thing that the liquidators might see more value in is the landing slots NokScoot has at airports in Thailand.
“Now, we don’t have a slot securitisation or a slot trading scheme in Thailand, but if we did, those slots in a perfect world would have some value,” Polivnick says.
“At the moment, with no traffic, the value is probably a lot less, but in time that will come back. If you have 20 slots at Don Mueang airport – which was full six months ago; there were no more slots – there is some value to those and at some point somebody will see the value of those.”
The airline’s employees will also be entitled to severance payments from their employer under Thai law.
“NokScoot as their employer would be liable to make those payments, not the shareholders,” Polivnick says.
As at 26 June, 425 employees had been retrenched with “full retrenchment benefits in compliance with Thai labour laws,” NokScoot said at the time. It kept a small team of employees on to manage and see through the liquidation process to completion.
LESSONS FROM LIQUIDATION
Polivnick says the airline market may be able to learn lessons from the failure of NokScoot, and the liquidation process will shed further light on why the airline failed once the most up-to-date balance sheet for the airline is released.
“[From] the liquidation process, I guess the most interesting thing to tell us will be the deterioration in the balance sheet between the last audited financial statements and the point at which the airline [enters] liquidation,” he says.
While the last audited financial statements are publicly available, observers of the airline will need to ask what change there has been since that statement was published.
“Its last audited financial statements are publicly available from the Ministry of Commerce. To what extent there has been a change since that is one of the questions that will need to be asked. I think that auditors of Thailand’s airlines are going to come under a lot more scrutiny as they assess the viability of the airlines,” he says.
“One of the interesting questions is that unlike [Thai Airways] they have not sought to rehabilitate under the bankruptcy act. They’ve gone straight for liquidation. That’s a choice that’s been made and it may reflect their view of the business model for the next 12 to 18 months and whether they would even be sustainable after some sort of rehabilitation.”
It is also likely that NokScoot’s problems go further back.
Polivnick says: “NokScoot was unlucky because they launched just about the time of the ICAO red flag, which meant they couldn’t start routes to their key target markets of Japan and Korea, and whilst they were able to operate some flights to China, the business didn’t take off the way they had planned.”
ICAO had Thailand under a red flag from early 2015 to October 2017, after an audit by the international body raised a number significant safety concerns about the country’s oversight of carriers, particularly around its processes around awarding new air operator certificates. That led to the disbanding of the Department of Civil Aviation, and its replacement with the Civil Aviation Authority of Thailand (CAAT).
“To some degree,” says Polivnick, “the joint venture was a victim of that to start with and it just never recovered from that.”
Analysis by Michael Allen of Cirium
