Most of Thai Airways’ dozen lessors are expected to reject a request from the airline to defer rental payments for 12 months but will likely acquiesce to a deferral until at least September, sources say.
Some lessors are more supportive of the airline’s rehabilitation and willing to be patient than others, and ICBC Financial Leasing (ICBC FL) is considering granting a 12-month deferral, according to three leasing and legal sources.
However, Cirium understands that some of Thai’s lessors feel that they are not so much “granting” the deferrals as having these forced upon them, given that options to place aircraft elsewhere are extremely limited in the Covid-19 environment.
“I don’t think it’s ‘agreed’, more like they are forcing it [on us],” says one lessor with exposure to Thai.
Sources tell Cirium that part of the reason most lessors are willing to accept rental deferrals up until September is that this is really not much of an ask, given that until the 17 August court date to decide whether the airline can enter business rehabilitation, it is impossible for lessors to receive any rental payments from the airline.
“There are [lessors] out there who think they are not giving much away by giving till the end of September, since they can’t get anything till August 17 anyway,” a source close to the deferral negotiations says.
The fate of more than three dozen leased aircraft at Thai Airways hangs in the balance. After Thailand’s bankruptcy court approved the airline’s application for business rehabilitation on 27 May, an automatic “stay” on creditor claims came into effect.
That stay restricts the ability of creditors to enforce any security or start any other litigation proceedings against Thai Airways. It also imposes a moratorium on creditors’ rights, including – crucially for lessors – the right to pursue action to repossess property that is the subject of lease or hire-purchase.
The airline, which now does not plan to fly internationally until September, originally asked for a 12-month deferral in a formal letter that was sent to different lessors at different times, the source adds.
Thai then told lessors more recently that while it understood most lessors could not agree to a 12-month deferral, it hoped they could accept a deferral until at least the end of September to give it time to formulate its turnaround plan.
The source close to the deferral negotiations tells Cirium: “[Thai Airways] has sent all lessors a formal deferral letter. Different lessors got it at different times. Pretty much from everybody – except ICBC [Financial] Leasing – they got a large raspberry.”
The person says ICBC FL are likely no more “cash rich” than any other lessors, and like others they also have “a fistful of issues” in their portfolio.
He cites as an example the lessor’s exposure to struggling Indonesian flag carrier Garuda Indonesia. Cirium fleets data show ICBC FL leases seven 777-300s to the Indonesian flag carrier and just a single 777-300 to Thai Airways.
One of the three sources who told Cirium that ICBC FL is considering a 12-month deferral for Thai says that the lessor has not yet made a firm decision on its rental deferrals for the carrier, but wants to support the carrier through its rehabilitation.
The person adds that it remains unclear what will happen after the 17 August court hearing.
“That depends on how many creditors they can convince to agree on their rehabilitation plan. If there is a majority to agree on that rehabilitation plan, the plan will actually go forward, but if it’s not agreed by a majority, then we don’t know what will happen.”
AMEDEO’S NEGOTIATIONS
While many lessors are keeping their negotiations with Thai Airways mostly private, Amedeo – via its listed sidecar Amedeo Air Four Plus (AA4) – revealed some information about its negotiations with Thai in a 16 July stock-exchange disclosure.
Amedeo leases four Airbus A350-900s to Thai and says it has not received any rental payments since 22 May 2019.
“The situation with Thai remains in the early stages with the first hearing on the rehabilitation petition scheduled for mid-August,” AA4 says, referring to the 17 August court hearing that will decide whether the airline can enter business rehabilitation.
It says that Amedeo Limited, its asset manager, is in discussions with secured lenders of the four aircraft on lease to Thai and “awaits further news of the [rehabilitation] planners’ intentions, which might not become clear until much nearer to the August hearing”.
AA4 adds: “A significant rationalisation and simplification of Thai[’s] future fleet is to be expected as a part of the rehabilitation plan of the airline, although the direction and details of these plans are not yet known.”
In May, the lessor had been negotiating with Thai regarding a partial deferral for six months starting April, with deferred payments to be made good with interest over the following three years.
However, while Thai’s senior management did confirm an in-principle agreement for this deferral, the “appropriate signatures on the documents were not received”, though AA4 did get consent from the relevant lenders.
Amedeo is now in discussion with banks again regarding deferrals.
It says in its latest update: “[The lending banks] understand that no payments will be received from Thai before the end of September and have requested that [they] draw on the security deposits held by [AA4] to cover interest-only payments under the debt during that period. Further developments are expected once the [rehabilitation] planner is appointed in mid-August.”
MISSING CONSECUTIVE PAYMENTS
Given the complexities of Thai business rehabilitation proceedings, even experienced aviation finance professionals may be confused as to why lessors are negotiating so much over deferral lengths.
A senior Hong Kong-based banker Cirium spoke to could not see how the deferral lengths matter since Thai Airways will not make payments to creditors while the court-ordered stay is in place.
However, the source close to the deferral negotiations tells Cirium that if the carrier misses two consecutive payments, then under the conditions of the moratorium, lessors are entitled to repossess their aircraft.
“Say the court rehab is on 17 August and the monthly repayment for a lease is 20 August and they also miss the 20 September payment, that lessor can then remove their aircraft. For finance leases, [payments] tend to be quarterly, so it’s less of an issue,” he says.
He suggests that instead of agreeing deferrals, Thai Airways could just make every other rental payment. This approach would not be “catastrophic” for the lenders, since “from a lessors’ perspective getting 50% of your rentals is better than getting 0% of the rentals”.
Before the court’s orders, Amedeo’s negotiations with the airline appear to have been tracking in the same direction. The lessor says it was discussing a “pre-petition agreement with the airline for deferral of 50% of its rents”, but admits that is now “unlikely to come into effect”.
While lessors’ views on appropriate deferral lengths differ, the source close to the deferral negotiations thinks everyone will agree to at least the September deferral.
“There will be some gnashing of teeth and histrionics,” he says, “but given it’s another six weeks and none of those aircraft are going to find new homes, I think lessors will agree to it.”
This article has been updated in the second and 14-16th paragraphs with additional information and to clarify sourcing.
Analysis by Michael Allen of Cirium
