Several startup airlines in Thailand do not seem to have sufficient capital to sustain good day-to-day operations, keep their aircraft in tip-top shape or train their crews properly.
Cash-strapped new airlines may cut corners with aircraft maintenance.
These carriers' available funds fall short of the minimum requirement adopted by prudent global operators, making them vulnerable to defaults, aborting flights and stranding passengers at airports as in the case of troubled PC Air.
Investors in these airlines have limited initial funds and attempt to achieve advance bulk ticket sales, often at heavy discounts.
They are taking advantage of less stringent requirements imposed by the Civil Aviation Department to secure an air operating licence that allows them to gamble on business opportunities.
Departmental regulations stipulate a company must have minimum registered paid-up capital of only 25 million baht to receive a charter flight licence for a fixed-wing aircraft.
A permit to operate scheduled flights with fixed-wing aircraft requires minimum registered capital of 200 million baht.
The regulations require that scheduled flight operators have at least two aircraft.
If it has only one, then it must secure back-up aircraft from other airlines or establish a code-share agreement with them so passengers can be transferred to other aircraft as needed.
A charter licence holder, on the other hand, merely needs to have one aircraft _ the root cause of the incident that left hundreds of PC Air passengers stranded for days at Seoul's Inchon airport last month.
PC Air's sole aircraft, an Airbus 310-222 with 200 seats, was refused permission to take off from Inchon due to a conflict between the airline and its South Korean agent, Skyjet, over unpaid bills totalling more than 10 million baht for airport charges and jet fuel.
A cost analysis by an aviation expert revealed that a startup airline with just one leased single-aisle jet such as an Airbus 320, which is popular with new operators, needs minimum capital of US$7.05 million (217 million baht) based on the current fuel price of about $3.60 per US gallon.
This expert, who has more than 50 years of professional experience but asked for anonymity, explained that the aircraft lessor will demand a deposit of as much as six months from the new airline.
Other suppliers and service providers will also require deposits or bank guarantees, adding to the capital requirement.
The deposit for a six-month A320 lease fee comes to $1.2 million or $200,000 a month, while the fuel bill, at $3.60 per gallon, amounts to $1.91 million per month.
For a three-month period, a startup airline with one leased A320 must have minimum cash on hand of $7.05 million, and the amount can be inflated as operations increase, the expert explained.
"It does not matter how many experts or good managers they [airlines and startup operators] have employed _ if they don't have the required capital, then they are bound to fail," the expert warned.
"Airlines with weak finances are good candidates for an incident or accident, as they may not have the money needed to put their aircraft on proper maintenance routines."
Crew training on refresher courses also suffers from the cash shortage, added the expert, who was a commercial airline pilot with more than 20,000 flight hours.
Getting an operating licence is relatively easy in Thailand compared with India, where a startup scheduled airline must have up to five aircraft in its first year, when its operations are limited to domestic flights.
A charter flight operator there must be in service for five years before it can upgrade to scheduled service.
To be eligible for international flights, an airline in India must have flown domestic flights for five years and ramped up its fleet to 20, according to airline veterans in Thailand.
They urged the Thai Civil Aviation Department to take a close look at the financial standing of holders of operating licences, now numbering 30-40, to make sure they can run their businesses without affecting members of the travelling public.
They say it is high time for the department to tighten terms and conditions for licences, as the situation has changed since the regulations were last amended.
Industry sources say the department is reviewing the terms, especially those governing charter flight licences, in a move to deal directly with the problems arising from the PC Air case.
Among them is a new requirement for a charter flight operator to have at least two aircraft instead of one or to have firm agreements in place for back-up aircraft or code-sharing with other established airlines.
A charter airline would be required to place guarantee money as a surety and put in place a contingency plan in case it is unable to operate flights.
The surety, the amount of which is being determined, will be used mainly to compensate passengers if an airline suddenly halts its service.
About the author
- Writer: Boonsong Kositchotethana
Position: Deputy Editor Business