Duty-free operators in negotiation with Airports of Thailand over d

Private operators and airlines owe Airports of Thailand 5 billion baht in payments, with King Power the highest debtor

A little over a year ago, in January 2024, the board of Airports of Thailand approved a project to allow the extension of payment deadlines for commercial operators and airlines facing liquidity issues as a result of the economic downturn caused by Covid pandemic.

Under the terms of the project, which covered operators at six airports under AOT's management, the participating companies are obliged to submit proposals and begin negotiations starting in February 2025. Additionally, they are required to provide contract guarantees, with the guarantee amount covering both the principal and fines for delayed payments, which are set at an interest rate of 18% or 1.5% per month.

King Power Duty-Free, the operator of duty-free shops, which is one of the major contract holders at AOT airports and which currently owes 4 billion baht, requested to delay minimum payment dues for another 18 months.  King Power has also requested negotiations to reduce the penalties for delayed payments. Negotiations are ongoing to reduce the penalty rate, though it will not be lower than MLR+2%.
 The interest rate is calculated based on the average MLR (Minimum Loan Rate) charged by five major commercial banks to large, creditworthy clients, plus an additional 2% per year. This rate will not be lower than AOT's financial cost, which is around 3%. Therefore, the MLR+2% will not affect AOT’s financial costs.

Reducing the penalty interest rate will not impact AOT’s revenue because the company will still receive its expected income. AOT's approach is to help operators continue their businesses normally, as many duty-free operators worldwide are facing liquidity issues.

However, as a state enterprise, AOT is bound by the contract terms and cannot engage in further negotiations or amendments to the agreement.Krit Phakakit, Secretary of the Board of Directors of Airports of Thailand Public Company Limited (AOT) reported to the Stock Exchange of Thailand (SET) explaining the liquidity challenges faced by commercial operators and airlines.

The statement clarified that King Power Duty-Free Co., Ltd. (KPD) sent a letter to AOT on August 26, 2023, requesting a deferral of payment for the compensation fees related to duty-free operations at Suvarnabhumi, Phuket, Chiang Mai, Hat Yai, and Don Mueang Airports.

The letter noted that the COVID-19 pandemic, which began in early 2020, severely impacted the tourism industry in Thailand, and KPD was no exception. The government’s strict travel restrictions led to a significant reduction in flights and passengers, which prevented KPD from conducting business as usual under their contract.

Thanks to AOT's measures to support airport operators, including allowing payment deferrals, KPD was able to maintain its workforce and operations. However, despite the gradual improvement in the COVID-19 situation, KPD continued to experience severe and ongoing challenges, particularly in recovering its business and making necessary investments in infrastructure and systems at the airports.

Moreover, financial institutions have been reluctant to provide additional loans, and KPD faced the pressure of repaying debts, fees owed to AOT, and payments for goods ordered from suppliers. This led to a significant financial burden in recent months.

The minimum compensation fees KPD was required to pay AOT were relatively high, given the lower-than-expected passenger spending growth, which was based on pre-COVID forecasts. As a result, the fees were disproportionately high compared to current revenues. Additionally, slower-than-expected sales of duty-free goods further exacerbated KPD's financial difficulties, leading to a significant loss of 651,512,785 baht in 2023.

From January 2024 until the present, KPD has continued to face losses. As a result, KPD urgently sought AOT's approval to defer the minimum compensation payments due from August 2023 to July 2024 (for 12 installments) for an 18-month period. This deferral would provide the financial breathing room necessary for KPD to recover its liquidity and return to normal operations, especially as the peak tourism season approaches.

KPD anticipates increased revenue during the peak season, as more tourists are expected to visit Thailand. The deferred payments would allow KPD to prepare for additional product purchases and optimize sales during this period.

The deferred payments would also alleviate KPD's financial burdens, helping the company improve its liquidity and return to stability by 2026. The deferral request is a result of multiple factors, including the unexpected and uncontrollable COVID-19 crisis, which continues to affect KPD's financial performance despite improvements in the situation.

AOT reviewed KPD’s request and confirmed that KPD’s liquidity issues were legitimate. Although the contract stipulates a penalty for late payments, AOT allowed KPD to defer the payments for the specified period without waiving the penalty.

In 2024, over 70 operators, including duty-free vendors, airlines, and car rental companies, at AOT's six airports faced similar challenges. Many sought payment deferrals or cancellations of operations, citing losses and liquidity problems.

Currently, AOT operators are paying over 50% of revenue-sharing fees, and some have requested payment extensions or restructuring. AOT has considered these requests, recognizing that allowing operators to restructure payments could benefit AOT more than rejecting the requests and going for a new tender.

(2025/02/17-00:00)