As previously announced, the lessee of DP Aircraft 1 ‘s two Boeing 787/8 aircraft, THAI Airways International, was placed into a rehabilitation programme to ensure its commercial viability following the unprecedented market disruption caused by the global COVID pandemic.
As part of the cost saving measures agreed under the programme, THAI has been operating its aircraft fleet under a ‘power by the hour’ agreement, which enabled the airline to pay solely for hours actually flown. The lease rental income generated under this arrangement exceeded DP Aircraft’s expectations. Ongoing costs and interest on scheduled and deferred loan amounts were paid when due, with the effect that an increase in the debt burden was avoided, and a cash reserve was instead built up. The PbH agreement ended as planned on 31 December 2022 and is now being replaced with new fixed lease rentals of $510,000 per aircraft per month for the remaining lease period.
Under the debt arrangements in place between the company and its lending banks, modified terms and conditions for the total loan amount outstanding as at 31 December 2022 have to be negotiated for the period commencing 1 January 2023 until loan maturity in December 2026. The company has now negotiated revised terms with its lenders, including the postponement of certain principal payments, to align the respective loan agreements with the terms of the amended lease agreements with THAI.
The total loan amount outstanding of $97.9m will be split into two tranches:
- Tranche 1 of $62.4m (amortising to a balloon payment which is dependent on the fixed interest rate and still has to be determined) represents the ‘scheduled debt’
- Tranche 2 of $35.5m (non-amortising) represents the ‘deferred debt’
$2.36m of surplus cash generated under the old arrangement will be used to repay some of the debt due under Tranche 1, while an agreed cash reserve of $500k per aircraft will be retained to cover unforeseen costs going forward.
The interest rate swap currently in place for the scheduled debt will be dissolved at no net gain or loss
Tranche 1 and Tranche 2 will each bear fixed interest rates to establish reliable and transparent payment schedules and to eliminate the risk of increasing interest rates. Further details will be provided once both have been fixed.
DP Aircraft will get to hold back $35,000 per month from the monthly lease rental to contribute to its ongoing fixed costs.
The lenders have refrained at this stage from charging the restructuring fees which are typically associated with a process like this; instead the lenders will be paid a fee after the eventual remarketing of the aircraft, subject to surplus sales proceeds being realised.
DPA : DP Aircraft 1 rejigs relationship with Thai Airways