In a recent interview on the “Kaohoon Turakij” program, Kerati Kijmanawat, the CEO of Airports of Thailand Public Company Limited (SET: AOT), addressed investors’ concerns regarding AOT’s financial health following liquidity issues at King Power Duty-Free, a key contractual partner.
King Power has requested an 18-month deferment from August 2024 to July 2025 for paying the Minimum Annual Guarantee (MAG or Minimum Guarantee), attributed to ongoing impacts from the COVID-19 pandemic that continue to affect passenger numbers and global economic volatility.
Mr. Kerati explained that AOT holds two primary contracts with King Power: Duty Free and Commercial Area. Despite various challenges, AOT has systems in place, such as reduced impact measures for MAG, which guarantees payments to ensure financial stability. Historically, King Power’s payments cover over 30% of its sales, but the substantial MAG makes achieving profitability difficult. In 2023, King Power reported a THB 650 million loss, alongside a staggering 18% penalty for late payments.
“We have a Bank Guarantee, thus any deferments or penalties must not exceed this guarantee. We remain confident that we are secure, even if King Power faces further payment issues,” stated Mr. Kerati.
Addressing the option of contract termination, Mr. Kerati emphasized the disadvantages, noting it could take at least six months to re-tender, during which AOT would face significant financial losses due to unproductive periods. Instead of terminating contracts, AOT focuses on sustaining its partners.
The CEO also mentioned the ongoing recovery of Thailand’s tourism sector. Although Chinese tourists are at 76-77% pre-pandemic levels, visitors from India, Russia, and Taiwan have helped compensate, supporting the duty-free sales recovery in line with passenger growth. Consumer spending challenges remain due to differing purchasing behavior among nationalities, complicating sales efforts—Europeans and Chinese, for example, shop differently.
Mr. Kerati affirmed that despite slight market concerns, AOT has seen a 17% year-on-year rise in revenue, driven by consistent passenger growth and MAG collections. He acknowledged market worries over deferred payments but reassured that the Bank Guarantee mitigates potential risks, negating the need for drastic contract moves.
Regarding the penalty rate, AOT has proposed reducing penalties from 18% to 9%, aligning closer to the 5% civil interest rate and acknowledging financial burdens. The adjustment aims to facilitate smoother operations, akin to a refinancing option from commercial banks.
Asked about potential contract outcomes if King Power could not meet obligations by 2029, Mr. Kerati assured that any action would adhere strictly to contractual terms. He stressed that while deferred payments are typical in business, using the Bank Guarantee to force business closures is not the intention—it serves AOT’s security.
Kerati also confirmed that AOT has not received other consortium interests to replace King Power and is reluctant to terminate the current partnership in favor of new tenders, fearing it would not secure a guarantee as robust as King Power’s offering.
