Airports of Thailand extends payment terms for King Power

AOT confirms there will no changes to contractual agreements with the duty-free operator amidst financial challenges

 

Airports of Thailand (AOT) has clarified its position regarding King Power's financial situation, insisting there are no plans to change the existing duty-free concessions contracts and saying it is instead offering extended payment terms to the retail giant.

 

This decision comes as King Power, the top duty-free operator at Thailand’s major airports, faces liquidity challenges due to the lingering impact of the Covid-19 pandemic on international travel.

 

AOT President Kerati Kijmanawat emphasised that the agreement with King Power remains in place, with the debt restructuring focusing on adjusting payment schedules rather than renegotiating the fundamental terms of the concessions.

 


“The debt restructuring for King Power follows the same criteria AOT uses for all operators,” he explained. “AOT has assessed that it will not impact the company's revenue, as the debt remains outstanding. AOT also earns interest at a rate higher than its financing costs.”
 
 

Kerati reassured stakeholders that this measure would not negatively affect AOT's revenue streams. While the company will receive payments over a longer period, the interest accrued on the outstanding debt will still exceed AOT's own financing costs. Furthermore, AOT holds substantial bank guarantees provided by King Power, ensuring a degree of financial security.

 

King Power secured its dominant position at Thailand's airports through a two-part bidding process in 2019, winning concessions at key hubs including Suvarnabhumi, Don Mueang, Phuket, Chiang Mai, and Hat Yai. These concessions involved substantial minimum guarantees (MGs) that totalled billions of baht annually, with the Suvarnabhumi concession alone carrying a first-year MG of 15.419 billion baht.

 

The 2019 bidding process, overseen by AOT, prioritised both technical proposals (80%) and financial offers (20%). King Power’s winning bids included a revenue-sharing model, stipulating that the retailer would pay AOT either 20% of its revenue or the agreed MG, whichever was greater.
 

The Covid-19 pandemic, however, significantly disrupted the aviation industry, impacting King Power's ability to meet its financial obligations. AOT initially provided some relief by suspending the monthly and annual MGs and switching to a percentage-based revenue sharing system. Contract durations were also extended by a year.
 

  

Despite these measures, King Power is now facing liquidity challenges and has formally requested an 18-month deferral of MG payments. Kerati confirmed that the high MG, which constitutes 30% of King Power's sales, has become a significant financial burden. AOT's own financial review of King Power revealed a 650 million baht loss in 2023.

 

The retailer currently owes AOT more than 4 billion baht in outstanding MGs, incurring a hefty 18% annual interest (1.5% monthly). King Power has requested a reduction in this interest rate, prompting AOT to consider a rate linked to the Minimum Lending Rate (MLR) plus 2%, which would be approximately 9% per year.

 

The unfolding situation highlights the risks associated with large, fixed-price contracts in a volatile global environment. The outcome of the payment plan adjustments between AOT and King Power will be closely monitored by the industry, as it could have significant implications for future airport retail concessions.

(2025/02/18-00:00)