The operating permit for struggling City Airways has been suspended until it can clear its debts, according to Civil Aviation Authority of Thailand (CAAT) chief Chula Sukmanop.
The CAAT has informed the airline it can no longer fly its Bangkok-Hong Kong and the Phuket-Hong Kong routes due to the permit suspension. The suspension took effect on Friday.
The airline cannot resume flights until it has cleared the debts as it could compromise its ability to maintain air safety standards, according to Mr Chula.
However, City Airways stopped flying of its own accord from 4pm on Thursday, the airline president Sutrissaya Vuthimedhi said.
The airline has filed a petition with the Administrative Court seeking to reverse the order.
Earlier, the CAAT sent City Airways a letter allowing it to fly until Friday.
Mr Chula said the airline had previously promised to pay off its debt, a considerable amount, but it has failed to do so.
“We have obtained evidence the airline has incurred huge debts which could lead to safety problems," he said.
The airline, believed to have racked up debts of 230 million baht, has said disruption to its services due to earlier flight suspensions has compounded its financial difficulties.
The Hong Kong aviation authority expressed concern over the airline’s aviation safety which justifies the CAAT's decision to give the airline a red flag, Mr Chula has said.
City Airways' co-pilots were overworked and were not getting sufficient rest. It also reportedly hired some untrained flight attendants, he added.
City Airways, founded in 2011 and originally co-invested in by Thai, Chinese and Hong Kong tour companies, has experienced liquidity problems since 2013, causing it to borrow money usually granted in short-term loans, according to the CAAT inspection.
While the company is shouldering the debts, the status of its revolving credit is also not strong, the findings said.
“It’s risky to run a business whose liquidity is based on loans,” Mr Chula said.
“This means all of the company's revenue will have to go to creditors.”
An urgent meeting between creditors and City Airways executives is needed to settle the debt. If the company can improve its liquidity, this could help the airline to recover financially.
However, if the creditors demand the immediate repayment of the debt, the CAAT will consider whether the airline has the financial ability to comply, with the business prospects of the company also taken into account.
The deliberations by the CAAT will be vital for the airline's survival.
Results of debt negotiations between the airline and the creditors will be factored in before the CAAT can determine whether City Airways can resume its service and whether the agency needs to further suspend or even revoke the company’s Air Operator Licence.
City Airways owes 25 million baht to state-owned Aeronautical Radio of Thailand Ltd and HK$1.47 million (6.73 million baht) to the Hong Kong civil aviation department, in addition to debts to aircraft leasing firms, Mr Chula said.
