THAILAND. An Airports of Thailand (AOT) Board meeting held today (16 June) to discuss King Power Duty Free Company’s (KPD) request for renegotiation – and possible termination – of its contracts at Suvarnabhumi, Don Mueang, Phuket, Chiang Mai and Hat Yai airports resolved to create a working group to study the crisis.
Consultancy services will be sought from a public higher education institution to evaluate possible solutions to the problems arising from the loss-making contracts (see our earlier story below for full details).
The working group will consider legal, economic, financial and business management issues, while analysing the constraints of previous contracts and proposing “suitable and fair approaches for all parties”, AOT pledged.
A conclusion is expected within 60 days before being further proposed to the AOT Board of Directors for consideration.
AOT said, “While proceeding with the above-mentioned resolution, AOT will hold a discussion with KPD for the fastest possible conclusion. However, KPD’s due payment of concession fees is still within credit limit of bank guarantee as a collateral to ensure financial obligations of KPD in case of unexpected events.”
AOT emphasised it still has “robust” financial stability and plans to seek revenue from other sources such as service fees from 400 Hz Power, Pre-Conditioned Air (PC Air), apron services, ground equipment, ground passenger services project and other related businesses at Suvarnabhumi Airport.
Additonally it is developing commercial land surrounding AOT’s six airports, thus generating incremental non-aeronautical revenue. AOT said it still has adequate liquidity for future investment projects and operations as planned without any impact on group financial stability.
READ ON FOR OUR EARLIER STORY
‘Force majeure’ – Airports of Thailand issues letter to Stock Exchange amid King Power Duty Free rental renegotiations
THAILAND. Airports of Thailand today sent and published a letter to the Stock Exchange of Thailand clarifying King Power Duty Free Company’s (KPD) request for renegotiation – and possible termination – of its contracts at three regional airports – Phuket International Airport, Chiang Mai International and Hat Yai International Airport,
Importantly, the letter also spells out that the bigger contracts at Bangkok’s two gateways, Suvarnabhumi and Don Mueang International airports, are included in the renegotiation request. Thai media reports until now have only focused on the three regional contracts.
AOT said the request was based on a wide array of negative factors including the closure of arrivals duty-free, a reduction on wine taxation in the local market, AOT’s reclamation of commercial space and the lack of proactive measures of public sector for tourist safety management resulting in a decline in the number of Chinese tourists.
Other negatives, AOT noted, are Thailand’s domestic situation, which is adversely impacting tourist and passenger numbers, the aftermath of COVID-19, war (Ukraine/Russia, Palestine/Israel) and the global economic slowdown.
“All of these factors have direct and indirect effects on KPD’s inability to operate business and comply with the established contracts and caused KPD’s continuous loss,” AOT wrote in a letter signed by Corporate Secretary Krit Pakagij. “The abovementioned force majeure factors are beyond KPD’s control.”
AOT explained that KPD had requesting a discussion regarding solutions that would allow it to continue trading, “or other settlements as well as possible termination of contracts”.
The airport company concluded: “AOT and KPD need to mutually negotiate solutions based on fairness for both parties as in compliance with the defined terms and conditions of contracts.
“Currently, AOT is under consideration on solutions with KPD and procurement of consultant services from a public higher education institution to conduct a study and an analysis for possible solution options to duty-free shop operation problems at AOT’s airports.
“AOT intends to propose the most suitable options derived from such study and analysis to proceed in accordance with the current situation for utmost benefits of AOT and fairness for concessionaires.
“However, KPD still operates duty-free shops at AOT’s airports as usual.”
As reported, the AOT Board is meeting today (16 June) to discuss the matter.
According to The Nation, the existing duty-free contracts are for 10.5-year terms from 28 September 2020 until 31 March 2031. Amendments were made in November 2020 and August 2022, with the current term running until 31 March 2026.
Following the pandemic, AOT changed the calculation of minimum guarantee payments to a per-passenger rate of THB127.30 (US$3.93), the title reported.
However, with per-passenger spend declining amid a troubled global economy, King Power Duty Free requested contract renegotiations in May – including potential termination if a satisfactory resolution cannot be reached. ✈
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