8 Jun, 2012

In Parting Shot, Ousted Thai Airways Chief Blows Whistle on Festering “Poor Governance”

Imtiaz Muqbil

BANGKOK – Making an unscheduled departure well before the official end of his four-year contract, the President of Thai Airways International has blown the whistle on a several instances of alleged poor governance, corruption and nepotism. Addressing the Foreign Correspondents Club of Thailand (FCCT) on June 1, Mr. Piyasvasti Amranand admitted having failed to adequately deal with this issue during his 27-month tenure. However, he indicated he had tried hard and obviously upset enough powerful people to the point where they finally had him ousted.

Hailing from a distinguished Thai family background and a former Energy Minister, Mr. Piyasvasti (click here for biodata) only spoke at the FCCT twice during his tenure as head of Thai Airways, once on November 26, 2009, a few weeks after he began work on 19 October 2009, and now on June 1, 2012 after his termination. He mentioned this during his talk, noting that during his first appearance he had outlined a nine-point turnaround and performance improvement program that he had set out to achieve. Today, he felt he had delivered nearly all of it, with perhaps the sole exception of governance. He will be officially leaving on June 21.

In his parting shot, Mr. Piyasvasti (pronounced Piya-savat) was clearly energised  by the May 30 release of a World Economic Forum report on Thailand’s competitiveness which showed the country being poorly rated for political instability, corruption and weakness of public institutions. This bolstered Mr. Piyasvasti’s central argument that poor quality governance in state enterprises would continue to shackle Thailand’s progress.

Indeed, the termination shows that no matter what changes for the better in Thailand, much still remains unchanged, for better and for worse. Although Mr. Piyasvasti clearly became a victim of the many enemies he created by his clean-up campaign, it is also a tribute to the freedom of Thai society that he could publicly expose these faults. That leaves it to the Thai public to decide what it wishes to do next – exercise their democratic right to push for clean bureaucratic and political systems or sit back and do nothing.

Focal point

Thai Airways is a particularly important focal point. It’s staff, drawn from Thailand’s middle-upper class society, are arguably the best-educated and qualified in a broad range of professions. Management has to be totally global in approach. But it is also a huge gravy train, thanks to the billions of baht it expends on purchasing every year. As for political shenanigans, Mr. Piyasvasti was appointed by the previous government led by the Democrat Party. His wife is also a Democrat MP and advisor to Democrat Party leader Abhisit Vejjajiva, the former Thai Prime Minister. The moment the Democrats lost the last elections in July 2011, rumours began swirling that Mr. Piyasvasti’s days were numbered.

For Mr. Piyasvasti, as for other global airline CEOs, it has not been a smooth ride. The past three years have been marked by all kinds of crises – volcanic ash in Europe, the March 2011 nuclear crisis in Japan, the Red Shirts takeover of the Bangkok CBD in April-May 2010, travel advisories, rising oil prices, the global financial crisis and the worst of all, the floods in Thailand between October-November 2011. Moreover, Mr. Piyasvasti said, the airline industry is a low-margin, high-competition sector, with low-cost airlines helping to dilute yields on key sectors and competition from the Middle Eastern airlines penetrating many key cities of Asia via their hubs in the Gulf.

He noted that in 2010, Thai Airways had made a record profit, which had helped the staff get a three-month bonus. This had been followed by a loss in 2011, thanks to high oil prices and the flooding, which had seen passenger traffic drop by 10% in 4Q 2011, normally the busiest and most profitable part of the year. However, 2012 has been off to a good start with a 78% cabin factor for first four months. Traffic in May, normally the worst month, is up 19% up over May 2011 and advance bookings for June could see the cabin factor rise to 74%, up from about 70% last year.

Also in 2010, Thai Airways was able increase its capital, after renegotiating all the old loans to reduce interest rates and raising new loans at good rates. There’s enough liquidity to ensure the staff get a 20% salary increase for two years running. A retrofitting of 20 old planes has been completed and deals have been signed for a massive fleet expansion plan that will help provide an upgraded product, lower fuel and maintenance costs, grow market share and reduce the average age of the aircraft. At 11 years, the average age is still well higher than Singapore Airlines and AirAsia. Because old planes are inefficient and fuel accounts for 40% of costs, airlines with new planes are doing much better. “The average age will be down to eight years in five years time and that will improve fuel efficiency tremendously. New planes can make difference between loss and profit,” he said.

Retrofitting has also helped boost product quality, especially in First Class. Along with retrofitting of six Boeing 747s and the arrival of the first A380s, on some of the key routes to Europe,“you will no longer have to bear our old planes with things falling apart, where we had converted First into Business and Business into Premium Economy.”

Massive Cost-cutting

Another key aspect of his plan was massive-scale cost-cutting, especially for personnel and fuel. His background in the energy sector helped in the negotiation of much better fuel hedging deals. “Even with the current high oil prices, we have probably made a profit of 10-13 million dollars per month from hedging during the first four months of this year. If oil prices stay the same, a large part of profit will come from hedging.” Add to that additional revenue streams from ground services and catering, and a profit of six billion baht this year is “easily achievable on condition that the cost cutting measures remain in place until the end of the year.” The profit will be even higher if oil prices go down.

Mr. Piyasvasti hailed the role of the unions whose cooperation had been instrumental in helping him. “I really have to thank the employees. You cannot do this sort of thing without the support of unions. As a state enterprise, Thai law requires that anything that affects benefit of employees needs approval of the unions. I have to thank everyone in Thai Airways for (helping the efforts) for cutting out the fat. Without that, we would not have been able to make a profit in the first quarter of this year.”

The only area he admitted having failed is governance.

“This company has a bad reputation. Everyone knows that — governance, nepotism. That’s why I said when I was to join, as a condition I had asked the board that the management must be allowed to manage and the board should only do their job as board members, like any listed company on the stock market, with good governance. You cannot run the company with the board messing around in every aspect of the work. The board had been intervening so much to the extent that when I joined, I found the management didn’t really manage the company. They stopped thinking, stopped decision-making, waiting to see directions from above. We actually wasted months talking about fleet plan and retrofit plan and capital raising plan. But people were looking around to see what should we do, which financial advisor should we hire rather than think about how we should proceed to raise capital. People were looking around if there is any signal from above. Things went around in a circle for a few months. But once they were confident that the line had been drawn clearly, the board should be doing what it should be doing and management became confident that it could make the decisions, things were able to move quickly.”

Performance Evaluation

He also discussed changes he had made in the performance evaluation criteria, starting with himself. “Previously there was no real clear performance evaluation from the top down. In 2009, the first thing I was asked whether I would like a Thai standard KPI like other state enterprises or an international one. The Thai KPI was more subjective, and depended more on whether the evaluation committee liked you or not. The international KPI would involve clear indicators for e.g. net profit, debt service coverage ratio, customer satisfaction as measured by outside organisations. I said, the international one, of course. It was the right decision. Without that, I would have been probably kicked out last year. With clear indicators, it’s more difficult to simply cook up your scores. My evaluation this year has been slow. They only agreed on my performance at the last board meeting on 21st May where I got a score of 87%, a little below last year but still very good. I have a feeling people probably tried to reduce the marks but that was not possible due to clear indicators. If I had failed that, they would have probably asked me to leave immediately. But with good performance, the only way to ask me to leave is to give me one-month notice and pay me six months salary. This is unfortunately a standard contract in all state enterprises. That’s why you see a lot of state enterprise CEOs leaving whenever there is a change of government. In my case, it took a bit longer than some others due to the very clear KPI.”

Mr. Piyasvasti repeatedly declined to answer questions on the reasons for his dismissal in spite of a 87% KPI. Although he said he knew the answer, he insisted that the airline’s board owed it to the shareholders and the employees to provide a clear answer. He cited media reports quoting the company chairman as claiming “lack of communication with the board”. Mr. Piyasvasti challenged that claim: “What does that mean? You cannot push through all the new aircraft purchases, capital raising, and so on, without communicating with the board.”

Pressed again, he replied, “There is no point saying. If I say, someone could deny it. So it will be an argument between myself and that person. Whoever terminated my contract has to say it himself. I think the employees, the shareholders have the right to know. There have been rumours for months. I am surprised it’s taken this long.” He urged the FCCT to invite the airline chairman Mr. Ampon Kitti-ampon to give a talk and “shed light on this.” He got a round of applause.

Mr. Piyasvasti said it is “not unusual” for CEOs of state enterprises in Thailand to lose their jobs whenever governments change. “I had expected this would happen. My contract had been negotiated in a way that was a little better than other state enterprise CEOs. Otherwise I would have disappeared long ago. A lot of good people in the private sector, they would never take that job because of all the clauses. It prevents good people from coming to work in state enterprises.”

Whistleblowing

This reporter then asked him specifically about his initiative to boost governance by encouraging whistleblowing in the company. He replied:

“It has worked to some extent. We have seen many cases being investigated and actions being taken. Many people have been fired, from the EVP down to people at the low level. And there have been a number of major cases which we have found. Strange cases. A lot of them before I joined. One case where the contract (for lease of two cargo planes at extremely high prices, which affected the financial performance of the Cargo unit) was signed just 14 days before I became President. Also a lot of cases at the bottom where previously their superiors would help to cover up the wrongdoings. That demoralised totally the good people within the company. The important thing is that whistleblower policy has to be followed by real actions, disciplinary actions that need to be taken.”

He said he had fired about 20 people in the past few months for all sorts of reasons. “It’s difficult to imagine what sort of reasons, strange reasons, you would never see in other organisations. For example, there was one person who asked for leave to go on company business but he actually went to Aranyaprathet and Poipet (Thai-Cambodian border towns where there is a large casino operated by Cambodian interests). We have evidence of that because of the  immigration and CCTV cameras. It was not once but 14 times last year and about 10 times year before. Do you keep that sort of people? Obviously not. You fire them. But in past the system would have helped keep that sort of person.”

He added, “Getting rid of the Thai Airways president is a lot easier than getting rid of an employee as many organisations will protect them — ministers, MPs, civil servants. They can run around lobbying various people” to stop action being taken against them. For this reason, it took more than one year to fire six people, one of whom quit by himself after being convicted on a rape charge.

He said a lot of time gets taken up by these “unfortunate, ridiculous cases.” That is due to the issue of governance, nepotism and the culture of the company and “that’s why I said I have not been able to change, yet. Now with my termination of the contract, it looks as if all these things will be back. I see these crooks parading back into Thai Airways. The board also. On the same day they terminated my contract, they decided that from now onwards all the station managers, country managers, directors upward need board approval. That is the beginning of enormous political interference. You cannot manage a company with all these appointments going for approval to the board. I had set it as condition that only EVP appointments would need board approval. The rest would have to be with the President or the management. Otherwise you have the board interfering directly right down to the bottom.”

Political interference

Mr. Piyasvasti went on: “If you want to make money out of procurement, by selling something to Thai Airways, it’s very simple. You put your people at the bottom, at the top and also somewhere in the middle so that they can all work together and facilitate the whole process and make it smooth and seamless right from the issuance of terms of reference, etc., etc., all the way to final approval. There can be no corruption in Thailand if the bureaucrats do not cooperate with the politicians. Well, there could be, but it will be a lot more difficult. And that’s why, with the new board resolution, it looks as if things will be going back.”

He also cited the role of political interference in scuttling a joint venture low cost airline that Thai Airways was to set up with Tiger Airways. The project did not materialise due to “political opposition” and “now we are competing with Tiger Airways. They have ordered lots of planes and increased frequency substantially between Singapore and Bangkok and that is cutting into our market share. Otherwise, with Thai Tiger we would have got the whole chunk of that.”

Mr. Piyasvasti noted that corruption may not be just within the company. “It occurs in this country at many levels. You have low level procurement of something small. Then you have the big items. But for the big items, you see the patterns — when you have to sell something to be approved by someone, that person does not make the decision, he refers it to someone else (who could be outside the company). Whoever wants to sell, you negotiate with that person. That would be the normal, easy way of doing things.”

Although he was asked, Mr. Piyasvasti steered clear of discussing other more sensitive issues also known to be widely prevalent. “Maybe you should ask the cabin crew,” he said, pointing to a number of them sitting in the audience. “They will tell you.”

His final comment of the evening also alluded to the corruption problem in the context of the huge flooding that hit in 2011. He said it had the worst impact in the 52-year history of Thai Airways. In spite of the fact that 6,000 staff had their homes inundated, the airline still managed to keep flying. “And why was there a flood? Was it because of the rain?” he ended.