KTB first Thai bank to fund jet purchases

Helping Thai AirAsia finance Airbus 320s

The state-controlled Krung Thai Bank (KTB) has become the first Thai financial institution to offer aircraft funding with a credit deal for no-frills carrier Thai AirAsia (TAA).

From left are Vipoota Trakulhoon, the senior executive vice-president for corporate banking Group 2 at KTB; Tassapon Bijleveld, TAA’s chief executive; and Phinyavat Chantrakantanond, the president of KTB Leasing.

The accord calls for KTB along with its leasing arm KTB Leasing to offer a credit line of 3.45 billion baht for TAA to purchase new Airbus 320 jetliners, valued at just over 1 billion baht apiece.

By striking the deal, KTB is treading into an area that has long been dominated by export credit agencies in Europe and the US.

Phinyavat Chantrakantanond, KTB Leasing's president, believes the deal, which took four months to finalise, will set the ball rolling for more transactions between locally registered airlines and Thai commercial banks.

The lending initially covers the purchase of TAA's 25th A320, which started operating on Oct 1, through finance leasing with TAA paying instalments to KTB.

TAA's 24 other A320s were purchased through operating leases arranged by the Malaysian parent AirAsia Bhd.

The key advantage of finance leasing is it allows TAA to record the aircraft as an asset on its balance sheet and those of the SET-listed Asia Aviation Ltd (AAV), the holder of a majority 55% stake in TAA.

Full ownership of the aircraft under the KTB lease will be transferred to TAA in 12 years, the planned retirement period for TAA's jetliners.

Both parties declined to reveal the terms involved, although Vipoota Trakulhoon, the senior executive vice-president for corporate banking Group 2 at KTB, said the interest rate is a combination of fixed and progressive rates.

Mr Phinyavat said KTB charges TAA its "super-prime" rates due to the airline's "low-risk" credit rating.

TAA chief executive Tassapon Bijleveld plans to add 4-5 jets a year to grow the airline's fleet to 48 by 2016.

KTB Leasing's asset base is expected to be ramped up to 50 billion baht next year from 30 billion this year, enabling it to extend its aircraft financing service.

Mr Vipoota said KTB wants to offer aircraft financing services to other Thailand-registered airlines including the flag carrier Thai Airways International, which operates nearly 100 planes and is undergoing a major fleet renewal programme.

Mr Tassapon said the airline will pay the instalments in baht, mitigating foreign exchange risks.

However, he said the funding cost for the KTB deal is similar to other TAA leases the past three years.

KTB executives said TAA likely found it more attractive to source local funding and get cash payment discounts.

TAA has yet to decide whether to make use of the remaining portion of the 3.45-billion-baht credit line allotted to it, KTB executives added.

Thai banks have blamed rules and regulations for preventing them from exploring airline financing deals.

About the author

Writer: Boonsong Kositchotethana
Position: Deputy Editor Business