Thursday, November 14, 2019

Airports of Thailand to end outsourcing of main functions

May 14. 2017
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By   THE NATION

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AIRPORTS OF THAILAND (AOT) will stop outsourcing contracts for its main businesses, while planning to set up subsidiaries to take over the currently outsourced operations, given frequent uncontrollable problems. 

AOT is also under pressure to terminate its duty-free contract with King Power. 

Nitinai Sirismatthakarn, AOT president, said that previously, the work done by several partners under the outsourcing contracts had problems that affected AOT operations. For example, safety officers struck for a pay increase and lost or damaged baggage. 

Therefore, the AOT board of directors decided not to extend outsourcing contracts for operation of its main businesses. 

AOT will establish two subsidiaries, one for safety services and the other for apron and ground equipment services, to operate main businesses such as safety, aerobridges and baggage loading at the six airports under its jurisdiction. 

These subsidiaries will be established in July with certain holding. Then they will be capitalised and their boards will be set up on expectation for business operations to begin next year.

Once the contracts between AOT and its subcontractors end, the subsidiaries will replace them, starting with safety business. The safety outsourcing contracts will end in fiscal year 2018 or by September 2019. 

Given that timetable, the safety subsidiary has one year and two months for preparation. It is expected to employ about 2,000 people in total, more than half at Suvarnabhumi Airport.

In regard to baggage-loading services at Suvarnabhumi, AOT has no plan to end the contracts and run this business, which is currently operated by Thai Airways International and Bangkok Flight Services. However, it will assist in this business if this business is packed to the determined level required.

Meanwhile, if any subcontractors break conditions of their contracts before they end, AOT will have a subsidiary take over that business. 

AOT targets mainly efficiency enhancement and service quality control, not profit, for its subsidiaries. Therefore, it maintains its target for operational costs.

 “Initially, we will focus on keeping costs the same, but increasing quality. If [our subsidiaries] are strong, we may have them outsource businesses at airports in CLMV [Cambodia, Laos, Myanmar and Vietnam]. We have hired Boston Consulting to study their capabilities and expect a conclusion in two months,” Nitinai said.

Nitinai is also under pressure to terminate the duty-free concession with King Power. The National Reform Steering Assembly has proposed the removal Nitinai and termination of the King Power concession, which holds a monopoly on airport duty free in Bangkok. 

He was accused of failure to review the multibillion-baht concession with King Power, allegedly resulting in unfair revenue sharing. In response to the accusation, he said the duty-free concession had been put in place before he became president of AOT, and it would expire in 2020. 

Should the AOT terminate the contract with King Power right now, it is likely to face legal claims, he said. Moreover, it could have an impact on investor confidence in government projects. He said new bidding for the duty-free concession will take place next year and it could lead to opening up the airport duty-free business.

 

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