Thai Airways International PCL : Clarifies Regarding Staff Complaint

THAI Clarifies Regarding Staff Complaint

Reference is made to a letter that called for a probe into bribery and corruption at Thai Airways International, which was lodged through the media on 12 February 2017.

Thai Airways International Public Company Limited (THAI) stated that various issues mentioned were inaccurate, which may cause misunderstanding and damage to the Company as well as those concerned. The facts concerning the various issues are as follows:

1. THAI has never reduced the average aircraft utilization age of its fleet
Clarification is made that the Company has never reduced the average aircraft utilization age for aircraft in its fleet, has completely utilized all aircraft to their full value, with consideration to passenger safety, comfort, and convenience. Aircraft decommission shall take place according to international standards and accounting standards as well as international safety regulations only.

2. THAI has neither sold shares, raised funds, nor made loans according to the Turnaround Plan 2009-2011 in order to buy new aircraft
The Company clarifies that THAI, as a listed company on the Stock Exchange of Thailand, must have clear set objectives in order to raise funds. Once the Company gains funding, it must strictly adhere to the established objectives.

3. THAI did not retrofit its A340s set to be decommissioned
Clarification is made that the Company's Board of Directors and Management never approved or did it proceed with seat retrofit on its Airbus A340 aircraft that were set for decommission in 2012.

4. Subsidiaries, Thai Smile, Nok Air, and Wingspan, were established according to the Company's business plan to boost competitiveness and not for personal benefit
The Company clarifies that Nok Air was established in 2004 in accordance to the Government's Open Skies Policy and during a time when the ASEAN region encouraged more open skies in order to boost competition, whereby business was not limited to domestic operations but expanded to cover international operations in the ASEAN region. Furthermore, during this period there was regular increased demand for travel and a growing likelihood that passengers would travel with low cost carriers. As a result, the Company set up Nok Air as its 'fighting brand' for domestic and ASEAN regional flights rather than lose opportunity to compete in the low cost carrier market.

Thai Smile was established in 2013 to boost the Company's potential performance and THAI's network with narrow body aircraft and lower investment costs in order to retain THAI's current customers at a lower cost. This is based on the Company's strategic plan, whereby Thai Smile began as a business unit that later separated as an established company for better efficiency in managing its operations. It currently operates as a full service carrier just like THAI but is more cost effective and is able to easily manage lower costs. It now operates flights from Suvarnabhumi Airport in order to connect flights with THAI more efficiently.

Wingspan was set up in 2010 in order resolve the issue of recruiting operational level staff who did not have particular special skills and had a high turnover rate. THAI follows the same procedure as other state enterprises that established similar companies beforehand.

5. The Company places importance on revising procurement regulations and conducts inspections on corruption regardless of whether or not there was a Rolls-Royce case
The Company has continually placed high importance on transparency regarding procurements, evident through revisions to the procurement regulation. The Company will not make procurements through a middle man, a procurement committee must be established with committee members from various departments for a balance of power. The Company's procurement procedures are in strict adherence to state entity procurement standards to be fair and transparent. Documentation is kept in case of future audits. The Company has entered into an Integrity Pact for the purchase of engines and aircraft maintenance partners, in order to be fully confident that there are no procurement bribes at THAI.

In 2014, the Transformation Plan included plans to improve procurement efficiency in order to ensure that improvements would be made regularly and that the Company's procurements could be audited by the public sector on a regular basis. The Public Sector Spending Monitoring and Auditing Committee, established by the National Council for Peace and Order (NCPO), recently appointed a subcommittee to investigate THAI's procurement process in mid-2016 that is chaired by General Chaiyaporn Rathpat, whereby no objections were found. In mid-2016, the Company also set up a committee to improve procurement efficiency that is made up of four board members, which is chaired by General Chartudom Titthasiri, with regular operations.

6. Office of the Auditor General of Thailand audits the Company's accounts and has never found a case of fixed accounts
The Company states that the Annual General Shareholders' Meeting approved to appoint the Office of the Auditor General of Thailand, which audits the accounts of all state enterprises, to conduct audits of the Company's accounts. The Office of the Auditor General of Thailand has neither found any case of fixed accounts nor any abnormal documentation of aircraft accounting conditions.

7. Decommission and sale of aircraft according to standards based on the Company's benefit
Clarification is made that the Company's policy for the decommission of aircraft is as follows:

• 1.) If the aircraft has been utilized for a long period, it is necessary to be decommissioned and new modern aircraft be acquired in its place regardless of regular product retrofit, with passenger comments that it is not equivalent to aircraft operated by competitors.
• 2.) If the aircraft has high investment costs, it is not worth continued use, for example the Airbus A340 was purchased when the cost of jet fuel was low and was used to compete on intercontinental routes. When the cost of jet fuel became expensive, other carriers with the same aircraft type in their fleet also experienced the same problem as THAI of incurring losses and decommissioned this type. On several instances, THAI attempted to operate this aircraft type on various routes but was unable to turn a profit and planned to decommission it from the fleet. Announcement was made for its sale but as there was little demand in the second-hand aircraft market for this type, the aircraft price was lower than the value that the Company should receive. Therefore, the plan for sale was revised and a buyer was sought that would benefit from it, for example the sale to the Royal Thai Air Force. THAI is a state enterprise with strict adherence to regulations on the sale of assets that at times can prove to be an obstacle to selling aircraft quickly.

8. Boeing 747-400 Conversion to Cargo Freighter
The Boeing 747-400 is a four engine aircraft that is beyond the age for regular service and was converted into a cargo freighter. At that time, jet fuel was not expensive for a four engine aircraft to turn a profit. Later as the cost of jet fuel increased, cargo freighters began to use engines that were much more cost effective than that equipped on this aircraft type. The Company therefore made plans to sell or put the aircraft up for lease at a price that it could make a profit.