TransAsia Airways’ unexpected decision to shut down early last week has a far larger impact on society than the one-day strike by China Airlines’ flight attendants in late June, affecting not just passengers on its domestic and international routes and the jobs of its more than 1,700 employees, but the interests of investors and the nation’s tourism industry as a whole.
Ever since TransAsia announced plans to suspend services and dissolve its operations to curb losses, there were expectations that the airline’s management might change its mind.
However, such expectations were soon dashed after a debt settlement meeting between TransAsia and creditor banks on Thursday night — the 22 banks agreed to take coordinated steps over the next three months to protect their debts and assets, including the sales of TransAsia’s planes.
TransAsia reported losses of NT$2.7 billion (US$84.53 million) in the first 10 months of this year, compared with NT$1.1 billion for the whole of last year. Making matters worse is the NT$11.06 billion TransAsia borrowed from local banks in syndicated or regular loans in recent years, in addition to the US$75 million in overseas convertible bond payments due tomorrow. The airline has said it is cannot make that payment because of a shortage of funds.
Under these circumstances, the company has to bow out of the industry according to free-market principles, not the other way around. As long as TransAsia still has enough capital to refund its customers and travel agencies and cover severance pay, its decision to dissolve has to be viewed in the context of a free market.
The question of whether the government should step in to rescue TransAsia has drawn a mixed response from the public, with some people saying that it should help restructure the airline because the company’s collapse could hurt local banks and the economic repercussions of the failure would be far-reaching and hard to predict, such as job losses.
However, it is clear that the combination of safety concerns, weak business strategy, market competition and government regulations discouraged banks from offering additional credit to TransAsia to avoid bad loans, and this has made it impossible for the nation’s third-largest carrier to improve its financial condition and honor its bond payments.
Letting weaker players go to the wall — although painful in the short term — would allow the survivors to grow stronger and become more efficient, which in turn would raise the nation’s airline industry’s long-term competitiveness and help improve the economy.
Moreover, if TransAsia’s sudden move to shut down is found to have involved a conspiracy to commit securities fraud and insider trading, the public needs to change a deep-rooted mindset that the government must always stand behind such troubled firms.
The government must respond to the call from the public for tougher law enforcement and higher standards of social responsibility for corporations, as TransAsia’s owners and managers have demonstrated a lack of ethics and corporate responsibility in the string of mishaps they faced in recent years.
Despite criticism by some pundits of the government’s failure to take preventive measures, the government deserves credit for taking prompt action to help mitigate the fallout from the TransAsia closure — from demanding that China Airlines take over TransAsia’s routes before Feb. 15 to launching probes into alleged market manipulation and insider trading.
Given TransAsia management’s decision not to seek restructuring, the government must stand firm on its no-interference position and keep its pledge to provide a level playing field for all players in the industry.
Anything else is just nonsense.
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