Page 1


Contents

General Information

2

Message from the Chairman

5

Message from the Management

6

Financial Highlights

8

Summary of Outstanding Achievements for Fiscal Year 2005

9

Business Operations of the Company and Subsidiaries

10

Policies of Associated Companies Revenue Structure

13

Review of Operating Results for Fiscal Year 2005

15

Airline Business and Competition

47

Risk Management and Risk Factors

48

Structure of Shareholders and Management

52

Good Corporate Governance Committee Report

69

Good Corporate Governance Compliance Report

71

Auditing Fees and Expenses

85

Other factors that may affect THAI’s financial performance

85

Related Parties Transactions

87

Management’s Discussion and Analysis for Fiscal Year

94

Business Operation Guideline and Corporate Strategy

100

Five-Year Review

101

Board of Directors’ Duties on Financial Disclosure

103

Audit Committee’s Report

104

Financial Statements

106

Notes to the Financial Statements

114

Board of Directors

132

Management Team

134


General Information

Company Name Business Head Office Registered Number Home Page Telephone Facsimile

Thai Airways International Public Company Limited Aviation transportation services and other related services 89 Vibhavadi Rangsit Road, Jompol, Jatujak, Bangkok 10900 PLC 422 www.thaiairways.com 66 (0) 2545-1000, 66 (0) 2595-1000 66 (0) 2513-0203

List of affiliated companies in which the Company’s Shareholding exceeded 10%

Company Names

Business Type

Share Type

Paid-up

Percent

Authorized Shares

of Interest

(million Baht) Thai-Amadeus Southeast Asia Company Limited

On-line Ticketing

89 Vibhavadi Rangsit Road,

Services and Other

Ordinary

15.00

55.0

Jompol, Jatujak, Bangkok 10900

Travelling Services

Tel. 66 (0) 2545-3333 Fax. 66 (0) 2545-3857

to Agents

Donmuang International Airport Hotel Company Limited

Hotel and Restaurant

Ordinary

120.00

40.0

Airline Catering

Ordinary

100.00

30.0

Hotel and Restaurant

Ordinary

937.50

24.0

Aviation Fuel Services

Ordinary

425.00

22.6

Hotel and Restaurant

Ordinary

1,017.78

30.0

Aviation Transportation

Ordinary

500.00

39.0

333 Moo 10, Chert Wudthakas Road, Don Muang, Bangkok 10210 Tel. 66 (0) 2566-1020-1 Fax. 66 (0) 2566-1941 Phuket Air Catering Company Limited 10/3 Moo 6, Sanambin Road, Tambon Mai Khoa, Amphoe Thalang, Phuket 83000 Tel. 66 (0)-7632-7497-506 Fax. 66 (0)-7632-7123-4 Royal Orchid Hotel (Thailand) Public Company Limited 2 Captain Bush Lane, Charoen Krung Road, Siphya, Bang Rak, Bangkok 10500 Tel. 66 (0) 2266-0123 Fax. 66 (0) 2236-6646 Bangkok Aviation Fuel Services Public Company Limited 171/2 Moo 10, Vibhavadi Rangsit Road, Sikan, Don Muang, Bangkok 10210 Tel. 66 (0) 2565-3811-8 Fax. 66 (0) 2565-3825 Suvarnabhumi Airport Hotel Company Limited 333 Chert Wudthakas Road, Sikan, Don Muang, Bangkok 10210 Tel. 66 (0) 2535-1111 Fax. 66 (0) 2535-4061 Sky Asia Company Limited th

183 Rajanakarn Building, 17 Floor, South Sathorn Road, Yannawa, Sathorn, Bangkok 10120 Tel. 66 (0) 2627-2000 Fax. 66 (0) 2286-9830

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Thai Airways International Public Company Limited

Services


Reference Securities Registrar

Thailand Securities Depository Co., Ltd. 62 Rachadaphisek Road, Khlong Toei, Bangkok 10110 Tel. 66 (0) 2229-2800, 66 (0) 2654-5599 Fax. 66 (0) 2359-1262-3

Debenture Holders’ Representative 1/2546

KASIKORNBANK PLC. Securities Service Department F.20, 1 Soi Kasikornthai, Ratburana Road Bangkok 10140 Tel. 0-2470-3687, 0-2470-1986 Fax. 0-2470-3684

Debenture Registrar 1/2546

KASIKORNBANK PLC. Securities Service Department F.20, 1 Soi Kasikornthai, Ratburana Road Bangkok 10140 Tel. 0-2470-1981-3 Fax. 0-2470-1998

Debenture Holders’ Representative 1/2547

NATIONAL FINANCE PLC. F.10-11, MBK Tower, 444 Phayathai Road Pathumwan, Bangkok 10330 Tel. 0-2217-8149 Fax. 0-2217-8417

Debenture Registrar 1/2547

Siam Commercial Bank PLC. Corporate Trust Operations Division 9 Ratchadapisek Road, Jatujak Bangkok 10900 Tel. 0-2544-3943-48 Fax. 0-2937-7750

Debenture Holders’ Representative 1/2548

BANKTHAI PLC. 44 Langsuan Road, Lumpini, Pathumwan Bangkok 10330 Tel. 0-2626-7000 Fax. 0-2626-7543

Debenture Registrar 1/2548

TMB BANK PLC. Registrar and Paying Agent 393 Silom Road, Soi 7 Bangrak, Bangkok 10500 Tel. 0-2230-5487, 0-2230-5731 Fax. 0-2230-6093

Auditor

Office of the Auditor General of Thailand Rama 6 Road, Phayathai, Bangkok 10400 Tel. 66 (0) 2273-9674-91 Fax. 66 (0) 2618-5769-70

Annual Report 2005

3


Message from the Chairman

Year 2005 marks the 45th anniversary of successful operations of Thai Airways International Public Company Limited (THAI), the national carrier of the Kingdom of Thailand. It is my pleasure to announce to our shareholders that THAI has achieved its 41st consecutive year of growth and profitability. All THAI employees are exceptionally proud of THAI’s long history and accomplishments - growing with the world’s commercial aviation industry, representing Thailand as ambassador of Thai traditions and culture to people around the world while showcasing the professionalism of a modern, forward-looking organization. We are equally proud of our ongoing contributions to all aspects of the Thai economy and bettering the lives of Thais. During the 2004/2005 fiscal year, THAI was badly affected by the financial and world economic turbulence. THAI had to also overcome the aftermath of the tsunami and many unexpected events, which occurred both within Thailand and overseas, have heightened the impact on the Thai tourism industry. The situation was further exacerbated by the surge in fuel prices, causing high overall expenditure for the Company, especially in the third quarter’s financial performance. In addition, investment plans for new aircraft and THAI activities at the Suvarnabhumi Airport along with the implementation of a Mutual Separation Plan increased the overall expenditure for this fiscal year. Various measures were initiated and introduced to deal with the situation such as marketing promotion programs to increase revenue, management reorganization, delaying of non-essential investments and cost cutting measures among others. With all the efforts and dedication from the Board, Management and staff at every level, I am pleased to say that THAI recorded improvement in our performance. Though fuel prices are likely to remain high and will generate a significant impact on the global airline industry, we are confident that THAI management and staff are resilient and more ready than ever before to effectively handle future circumstances, and overcome any obstacle in order to maintain THAI’s position in providing exceptional services to all passengers and customers with our unique Thai identity.

Wanchai Sarathulthat Chairman of the Board of Directors

Annual Report 2005

5


Message from the Management

Fiscal year 2005 proved to be a year of challenges for Thailand and Thai Airways International Public Company Limited, the national carrier, with the highest ever jet fuel prices, unrest in the southern part of Thailand, the many natural disasters that have occurred around the world and the heightened level of competition within the airline industry resulting from the entry of many low cost carriers. A more proactive strategy has been adopted and preparations have been made to navigate through potential crises at the international level. On the occasion of its 45th anniversary, THAI took the opportunity to launch its re-branding campaign on 1 May 2005, emphasizing “High Trust, World Class and Thai Touch” to re-emphasize its role as a world-class airline and the aim of becoming the best in Asia. New staff uniforms, new aircraft livery and the new look of our premium class passenger lounges were also unveiled with the intention of bringing a fresh look, updated and with added liveliness. Another major task for which THAI is preparing itself is the move to the new Bangkok International Airport, Suvarnabhumi Airport. To facilitate its operations at the new airport, THAI has invested in the construction of six new facilities including the Cargo and Mail Commercial, Technical Services, Catering, Ground Support and Equipment Services and Ground Customer Service buildings along with its Operations Center. Construction of the six facilities is going according to plan. The successful technical test flights conducted with the Thai authorities at Suvarnabhumi Airport on 29 September 2005 with THAI’s new Airbus A340-600 (Royally bestowed name - Wattanankorn) and Boeing 747-400 (Royally bestowed name - Hiranchai) has provided THAI with a high level of confidence that operations will be smooth and efficient upon moving to Suvarnabhumi Airport in 2006. During fiscal year 2005, THAI has demonstrated its resilience despite being faced with difficult situations beyond its control, to deliver its 41st consecutive year of profitability. The success is attributable to the resolve of THAI’s staff to provide unsurpassed quality service

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Thai Airways International Public Company Limited


to passengers. There has been constant monitoring and improving of our products and services both on the ground and onboard the aircraft emphasizing greater comfort and availability of new technology while emphasizing high hygiene and high service standards with Touches of Thai. Our Cargo and Mail Commercial, Ground Support and Equipment Services, Ground Customer Services, Catering and Technical Services business units have also contributed to THAI’s overall financial performance through providing high quality products and services for satisfied customers. The many accolades and awards received by THAI attest to the service quality while recently, THAI was recognized by the World Health Organization (WHO) and Thailand’s Ministry of Public Health for its exceptional in-flight hygiene and cleanliness. Major travel and aviation related publications have singled out THAI for excellence in in-flight service, meals, wines, advertising and overall excellence. Competition is expected to increase both domestically and internationally while jet fuel price is likely to remain high. The combined effect will have significant impact on the commercial airline industry and THAI. However, THAI stands ready to take on the challenges by seeking to thoroughly understand them and reacting with organizational flexibility. THAI’s management and staff are committed to taking the Company to the forefront of the airline industry and to remaining the goodwill ambassador for Thailand, serving as a source of pride for the Thai nation. I would like to take this opportunity to express my appreciation to the dedicated staff along with our valued customers and shareholders for the ongoing support and the trust bestowed upon the Company.

Somchainuk Engtrakul Member of the Board of Directors Acting as President

Annual Report 2005

7


Financial Highlights

Consolidated Unit : Million Baht Total Assets Shareholders’ Equity Share Capital Revenue from the Sale of Goods and the Rendering of Services Profit from the Sale of Goods and the Rendering of Services Profit before Interest and Tax Net Profit Amount per Share (Baht) Par Value Net Profit Total Assets Shareholders’ Equity Financial Ratios Net Profit per Revenue from the Sale of Goods and the Rendering of Services (%) Debt-Equity Ratio (Times) Return on Average Total Asset (%) Return on Average Equity (%)

2005

2004

2003

231,638

193,211

165,095

59,212

54,324

36,171

16,989

16,850

14,000

162,488

152,603

134,536

10,824

20,498

17,306

14,235

19,205

21,753

6,777

10,077

12,079

10.00

10.00

10.00

4.00

6.14

8.63

136.70

117.66

117.93

34.94

33.08

25.84

4.2

6.6

9.0

2.9

2.6

3.6

3.2

5.6

7.0

11.9

22.2

37.5

Note : The 2004 financial statements were restated with the accounting policy changes in fiscal year 2005.

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Thai Airways International Public Company Limited


Summary of Outstanding Achievements for Fiscal Year 2005

Celebrated its 45th year of successful operations Achieved profitability for 41st consecutive year Launched re-branding of THAI with a New Corporate Identity highlighting High Trust, World Class and Thai Touch Took delivery of 2 new Airbus A340-500 aircraft with a 215-seat configuration: Royal Silk Class (60 seats), Premium Economy Class (42 seats) and Economy Class (113 seats) Took delivery of 2 new Airbus A340-600 aircraft with a 267-seat configuration: First Class (8 seats), Royal Silk Class (60 seats) and Economy Class (199 seats) Inaugurated non-stop Bangkok-New York flights (THAI’s 72nd destination) utilizing the latest Airbus A340-500 aircraft, reducing travel time to approximately 16 hours, the shortest from Southeast Asia to New York Awarded IATA Operational Safety Audit (IOSA) certificate from International Air Transport Association (IATA) Introduced the Thailand Pass Card, a land services travel card for rail travel, underground train, BTS skytrain and bus services Signed a code share agreement with Air Madagascar on the Bangkok-Antananarivo route, the capital of Madagascar, Africa Signed a code share agreement with Air New Zealand for travel between New Zealand, Australia and Thailand e.g. Wellington, Christchurch, Melbourne, Perth, Sydney and Bangkok Launched the Happy Andaman 2005 project to stimulate travel to the Andaman area of Thailand Co-organized the 9th Underwater Wedding event with the Trang Chamber of Commerce to stimulate travel to the Andaman

Awards received in 2005 Norway’s Grand Travel Award 2005 for overall excellence in tourism operations First prize for airline meal service in Economy Class from 2005 survey of international travelers through Skytrax (UK) website Best First Class Lounge from 2005 survey of international travelers through Skytrax (UK) website Award from World Health Organization (WHO) for initiatives in pursuit of improved standard in airline hygiene and cleanliness presented to THAI in December 2004 in Geneva, Switzerland Award for the Most Hygienic Cabin Environment from the Thai Ministry of Public Health Award for Outstanding Hygiene in Royal Orchid Lounges from the Thai Ministry of Public Health Telly Award for “Happiness in Thailand” travel video and for in-flight entertainment from the 26th TV Commercial and Advertising Contest for 2005 in the USA 2005 Wanderlust Travel Award and 2nd place winner of Top Major Airline from Wanderlust Magazine, a popular UK travel publication 2005 Award for Fastest Growing Airline from the Asian Region from Athens International Airport based on the number of inbound passengers

Annual Report 2005

9


Business Operations of the Company and Subsidiaries Policies of Associated Companies

Thai Airways International Public Company Limited (THAI) is a state enterprise under the jurisdiction of the Ministry of Transport and is Thailand’s flag carrier on both domestic and international routes. Since November 2001, the Company restructured its organization into the following key business units and subsidiaries:

Airline Business Air transport, comprising passenger, cargo and mail transport, are the Company’s main businesses. THAI provides regularly scheduled flights as well as chartered flights, to domestic and international destinations.

Operations of Subsidiaries Directly Related to Air Transport These are essential services that provide direct support for the Company’s main business of air transportation. These units must operate with a high level of coordination so as to enable aircrafts to depart and arrive at airports on schedule, safely and conveniently resulting in customer trust. Services are as follows: Ground Customer Services -

Check-in service i.e. checking of travel documents, passports, visas, air tickets and seat assignment

-

Baggage weighing and tagging

-

Services for departing, arriving and transit passengers

-

Lost and Found Baggage

-

Royal First and Royal Silk Class Lounges

-

Limousine services

-

Aircraft load control services to customer airlines

Ground Support Equipment Services Passenger services -

Transfer of passengers between terminal and aircraft via ramp buses or aviation bridges

-

Baggage handling between terminal and aircraft

Aircraft servicing -

Signal service to guide pilot to and from aviation bridge or parking area

-

Tow service to and from aviation bridge or parking area with aircraft towing tractor

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Thai Airways International Public Company Limited


-

Aircraft boarding and disembarking with passenger staircase

-

Coordination of refueling services with fuel suppliers

-

Onboard potable and general use water supply

-

Cleaning service for cabins, toilets and galleys

-

Air conditioning services during passenger boarding and disembarkation

-

Power generation service for aircraft use while on the ground

-

Baggage conveyer belt services

-

Cargo transfer service between warehouse and aircraft using equipment such as forklift trucks, containers etc.

Cargo and Mail Commercial -

Cargo handling services

-

Cargo storage

Catering Services -

Food and beverage preparation for passengers on THAI and customer airlines

-

Operating restaurants and snack bars at Bangkok, Chiang Mai, Phuket and Chiang Rai airports for travelers and the general public

-

Internal and external banquet services and operating Puff and Pie bakery outlets

Technical Services -

Maintenance check of aircraft parked at various domestic and overseas stations, whether in transit or overnight

-

Major overhauls according to schedule and equipment maintenance at both Bangkok International Airport and Utapao Airport in Rayong Province (the second Aircraft Maintenance Center opened in May 1999)

-

Technical associated activities, i.e. joint aircraft maintenance with the Police Aviation Division and other government agencies

Transport Support Activities These activities are operated to support marketing efforts and provide convenience to passengers who can utilize additional services as follows: - Dispatch services - provide information about routes and weather conditions for aircraft operational safety - Sales on board of duty free goods - Sales of souvenir products from THAI Shop

Annual Report 2005

11


Types of Business and Operations of Subsidiaries and Associated Companies 1. Thai-Amadeus Southeast Asia Company Limited (55% Shareholding) The company was registered on 1 October 1997 to provide customers with computerized reservation services mainly for air travel but also for reservations of accommodation etc. 2. Donmuang International Airport Hotel Company Limited (40% Shareholding) The company was registered on 21 May 1981 to operate a hotel and restaurant business (owner and operator of Amari Airport Hotel). 3. Phuket Air Catering Company Limited (30% Shareholding) The company was registered on 14 February 1992 to operate a flight kitchen at Phuket Airport to prepare meals for airlines on international flights. 4. Royal Orchid Hotel (Thailand) Public Company Limited (24% Shareholding) The company was registered as a public company on 15 April 1994 to operate a hotel and restaurant business (Royal Orchid Sheraton Hotel). 5. Bangkok Aviation Fuel Services Public Company Limited (22.6% Shareholding) The company was registered as a public company on 28 September 1995 to handle fuel storage for various airlines and provide aircraft refueling service at Bangkok International Airport. 6. Suvarnabhumi Airport Hotel Company Limited (30% Shareholding) The company was registered on 24 October 2003 to operate a hotel business and provide facilities for passengers and the general public at Suvarnabhumi Airport. 7. Sky Asia Company Limited (39% Shareholding) The company was registered on 27 February 2004 to operate a Low Cost Carrier (LCC) business. Sky Asia Co., Ltd. or “Nok Air� is the carrier that began services on 23 July 2004, offering flights within Thailand and the Asian region. Major domestic routes are BangkokChiang Mai, Bangkok-Udon Thani, Bangkok-Hat Yai and Bangkok-Phuket sectors.

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Thai Airways International Public Company Limited


Revenue Structure

The details of the Company’s total revenues are as follows: 1. Revenue from passengers and excess baggage in each route of the Company including charter flights 2. Revenue from freight according to weight, category, size and destination 3. Revenue from mail 4. Revenue from business units and support activities 5. Revenue from subsidiaries 6. Other income

2005 MTHB

2004 %

MTHB

2003 %

MTHB

%

Revenue from domestic transportation Passengers and excess baggage

10,581

6.41

11,524

7.48

11,391

8.41

378

0.23

377

0.24

373

0.27

9

0.01

8

0.01

8

0.01

6,667

4.04

6,193

4.02

5,311

3.92

686

0.41

284

0.18

258

0.19

18,321

11.10

18,386

11.93

17,341

12.80

118,653

71.89

110,942

72.02

95,018

70.16

24,041

14.57

21,873

14.20

20,998

15.51

1,070

0.65

987

0.64

863

0.64

143,764

87.11

133,802

86.86

116,879

86.31

403

0.24

415

0.27

316

0.23

162,488

98.45

152,603

99.06

134,536

99.34

Share of profit from associated companies

127

0.08

158

0.10

166

0.12

Interest income

362

0.22

336

0.22

264

0.20

2,071

1.25

955

0.62

460

0.34

2,560

1.55

1,449

0.94

890

0.66

165,048

100.00

154,052

100.00

135,426

100.00

Freight Mail Revenue from other activities - domestic Business Units Supporting Total operating revenues - domestic Revenue from international transportation Passengers and excess baggage Freight Mail Total operating revenues - international Revenue from subsidiaries THAI-Amadeus Southeast Asia Co., Ltd. Total operating revenues Other income

Others Total other income Total revenues

Note : The Company entered into a contract with Traveler Corporation of Japan as distributors of In-Flight Duty Free which is a part of supporting activity.

Annual Report 2005

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Review of Operating Results for Fiscal Year 2005

To better serve and meet changing needs and requirements of passengers, service changes were made to emphasize comfort and luxury with touches of Thai. This is reflected in the introduction of new livery, staff uniform and a new logo, which in addition to retrofitting of existing aircraft, has been timed to coincide with the delivery of our latest aircraft. Strategic adjustment of routes complemented by the launch of new services over the past year has enabled THAI to overcome difficult hurdles and increase confidence of passengers traveling with THAI. As a result, THAI has been able to add to its record, its 41st year of profitability.

Core Business Aircraft Fleet Number of Aircraft

Aircraft Type

2005

2004

Boeing 747-400

18

18

Boeing 747-300

2

2

Boeing 777-300

6

6

Boeing 777-200

8

8

Boeing 737-400

10

10

Airbus A340-600

2

-

Airbus A340-500

2

-

Airbus A330-300

12

12

Airbus A300-600

21

21

MD-11

4

4

ATR 72

2

2

87

83

Total

THAI’s fleet grew to 87 aircraft in fiscal year 2005 from a total of 83 aircraft the previous year. Of the 4 aircraft that were added, 2 were the latest super-long range Airbus A340-500 aircraft delivered in May, which have been used to fly the Bangkok-New York route. Another 2 Airbus A340-600 aircraft were delivered in July and August, which have been used for THAI’s European and Australian routes. Of the 87 aircraft, 3 are currently leased to Nok Air (2 Boeing 737-400 aircraft since July 2004 and another Boeing 737-400 aircraft in October 2004).

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15


Route Development In 2005, THAI expanded both its transcontinental and regional routes spanning key cities in various regions of the world. Transcontinental non-stop flights and direct-link flights using Bangkok’s world class interchange hub provide passengers the convenience of connecting to 59 cities in 33 countries around the world and 13 destinations within Thailand.

North American routes THAI introduced its 6 weekly non-stop flights from Bangkok to New York City using its new super-long range Airbus A340-500 aircraft. The flight path flies over the Arctic and is the shortest distance connecting the two important economic and tourist centers. The new non-stop flights enable THAI to provide services to passengers on the East Coast of the United States of America in addition to its Los Angeles operations serving passengers on the West Coast. Within the United States, THAI uses its Star Alliance partners to extend its seamless passenger service to 10 destinations namely Atlanta, Denver, Dallas, Washington, New York, Los Angeles, Miami, Chicago, Seattle and San Francisco and another 3 which are Toronto, Montreal and Vancouver in Canada.

European routes As a result of the growth in air traffic between Europe and Asia as well as Europe and Australia, THAI increased its flight frequency to 11 key European centers. Frequency was increased to 14 flights per week or twice daily flights to London. THAI also added an additional flight to both Frankfurt and Stockholm using its Boeing 747-400 aircraft to support THAI’s marketing and sales effort to promote travel to Thailand. THAI coordinated with its European Star Alliance partners - Lufthansa with its hubs in

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Thai Airways International Public Company Limited


Frankfurt and Munich, BMI in London and Austrian Airlines in Vienna to ensure seamless connection for passengers to European destinations not served by THAI. THAI’s network spans these key cities within Europe: 9 cities in major European Countries Amsterdam, Geneva, Vienna, Brussels, Barcelona, Lisbon, Budapest, Prague, Warsaw

8 cities in Germany Nuremberg, Dusseldorf, Cologne, Berlin, Stuttgart, Hamburg, Hanover, Munich 5 cities in Austria Graz, Innsbruck, Klagenfurt, Linz, Salzburg 8 cities in England and Ireland London, Dublin, Glasgow, Edinburgh, Belfast, Leeds, Manchester, Tees Side THAI also plans to launch a new service, Bangkok-Moscow, in November 2005. Australian and New Zealand routes THAI launched 3 weekly direct flights to Auckland from Bangkok. These direct flights provide greater convenience for passengers, as they no longer have to transit in Australia. As a result, more seat capacity is available to generate additional revenue on flights to Sydney and Brisbane. THAI also offers code share flights with Star Alliance partner Air New Zealand to tourist destinations in New Zealand. Regional routes THAI adjusted its regional routes in Asia to reflect its strategic network development plans with Thailand as the aviation center, providing convenient connections to 41 destinations by adjusting slot times and increasing flight frequency to the rapidly growing

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17


markets of China, Japan, Korea, India and the Middle East. THAI also works closely with its Star Alliance partners to better compete and increase travel to the following regions:

Northern routes Flights to Nagoya, Japan from Bangkok are now daily flights, an increase from 5 weekly flights. However, the frequency of direct flights from Osaka to Phuket has been reduced to 3 weekly flights due to reduced traffic demand. Flight frequency and flight times to and from Hong Kong and Taipei have also been adjusted to reflect market conditions and competition. An additional flight to Manila was added to the weekly frequency, while 3 weekly flights have been added in each of the fast growing Chinese markets of Beijing and Canton, with one additional frequency to Chengdu.

Western and Middle Eastern routes Frequency was increased by 2 weekly flights each to Mumbai and Kolkata in India and one weekly flight to Lahore, Pakistan. For the Middle East, the Bahrain-Kuwait flight was rerouted to Dubai-Kuwait.

Southern routes Routing and schedule changes were made for flights to Singapore, Malaysia, Indonesia and Brunei in reaction to increased competition from low cost carriers and the effects of the 2004 tsunami on tourism.

Indochina routes There has not been any significant change to the Indochina schedules and destinations, with the exception of an added weekly flight to Saigon that began in March 2005, served by the Airbus A300-600 aircraft.

Domestic routes THAI offers flights from Bangkok to 13 key domestic destinations (329 flights per week or 47 flights per day). These include: Northern region - Chiang Mai, Chiang Rai, Mae Hong Son, Phitsanuloke Southern region - Phuket, Hat Yai, Surat Thani, Nakorn Sri Thammarat, Krabi, Trang Northeast region - Khon Kaen, Udon Thani, Ubon Ratchathani

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Thai Airways International Public Company Limited


THAI also cooperates with private domestic airlines to enable THAI’s passengers to travel to Nan, Lampang, Sakon Nakorn, Nakorn Phanom, Roi Et and Ranong, which are not served by THAI.

Airline Alliances THAI has simultaneously taken measures on various fronts to meet the challenges of intensifying competition within the airline industry. These strategies include proactive marketing and sales, launch of new destinations and rationalization of flight frequency. To meet the challenges of the rapidly changing environment, THAI placed great importance on the cooperation with its Star Alliance partners, which has led to the generation of more revenue, lower cost and helped retain passenger loyalty for products and services under the Star Alliance brand. Joint projects that began before or in 2004 include the Interline Electronic Ticketing project where members of Star Alliance can issue e-tickets on each other Services. The Move Under One Roof project at new airports in various countries is an effort to present a united front by locating offices in the same vicinity with the shared use of airport equipment and facilities. The Joint Purchasing project and the development of special frequent flyer mileage programs were developed to provide maximum benefits to frequent flyers of both THAI and Star Alliance carriers. In 2005, THAI worked with Star Alliance partners on the Global Connectivity Improvement project to better co-ordinate connection schedules amongst Star Alliance partners through Bangkok so as to strengthen the Alliance’s product offering and to support Bangkok as another Star Alliance Hub in Asia. This project began in February 2005 and will be completed by the opening of Suvarnabhumi Airport in 2006. To boost tourism, consent was given by the Tourism Authority of Thailand for THAI and Star Alliance partners to launch a Visit Thailand Campaign 2005/2006 to boost tourism to Thailand through Alliance member airline channels.

Commercial Operations In face of heightened competition and the impact of events beyond its control such as the tsunami and spiraling fuel cost, THAI implemented a multi-faceted strategy emphasizing network airline sales with premium service and medium price. THAI also undertook a proactive approach targeting new customer groups and launched new destinations to

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19


increase the number of passengers and thus revenue while enhancing THAI’s e-ticketing capability to promote direct marketing and sales. Besides co-ordinating with members of the Star Alliance, THAI also expanded code share agreements and negotiated special prorate agreements with non-Star Alliance airlines to extend network coverage of new destinations to better serve passengers. The establishment of this extensive network leads to the development of traffic through Bangkok thus serving to promote it as a regional hub, the generation of additional revenue for THAI and increase of market share. The Reservation Booking Designator Guideline and the Revenue Management System were utilized to maximize system revenue by providing ticket pricing guidelines for each class of seating and prioritizing seat selection by yield. Both route and aircraft rationalization were undertaken to meet demands of each market. Class reconfiguration was undertaken for specific routes such as Scandinavia and New York by having only Royal Silk Class, Premium Economy Class and Economy Class. Flexible pricing, expansion of distribution channels and marketing support were used to develop new markets and stimulate demand in sectors with potential. In a world that is increasingly becoming borderless, THAI has developed an internet sales strategy that will be implemented both in Thailand and around the world to better serve customers. THAI seeks to create a competitive edge through increasing value of products and services. As part of the strategy, THAI has sought a broader distribution channel for its Royal Orchid Holidays (ROH) packages and increased variety and added value. THAI has a co-branded credit card program and is upgrading its customer information system for ease of access by customers regarding Royal Orchid Plus mileage accumulation and other communications from THAI via electronic channel. The implementation of the Passive Segment Notification Ticket Time Limit and Ticket Database Duplicate Check were to increase integrity of information regarding flight bookings. There was closer monitoring of payments made through the upgrading of the Computerized Reservation System (CRS). THAI also re-negotiated with Global Distribution networks to reduce booking charges and maximize benefits for THAI. Numerous measures have also been implemented across the Company to rein in costs especially regarding fuel consumption and other operating expenses. The THAI Contact Center was established to better serve customers by providing a channel for contact and having a Knowledge Base system providing prompt replies to

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customer enquiries. New network destinations and new destinations along with new in-flight products were launched and installed for better passenger service and comfort to enhance the attractiveness of THAI’s products and services and attract recurring business. Nok Air, a 39% held low cost affiliate of THAI, was launched to counter the impact of other low cost carriers operating in the domestic market. As a full network and full service airline, THAI adopted certain aspects of the low cost airline model to improve efficiency by reducing aircraft turnaround time, implementing flexible air fare, reducing cost related to ticket distribution through the use of internet booking and e-ticketing, emphasizing point-to-point service and seamless service, and enhancing cooperation with other airlines via interline and code share agreements. New staff uniforms, aircraft livery and in-flight products are examples of changes made to the THAI brand, which were introduced as part of the Brand Revitalization program that has been built on the existing brand value to reinforce passengers’ positive perception of THAI. Characteristics of certain markets still warrant the services of travel agencies, thus maintaining working relationships through competitive pricing and competitive incentive schemes are keys and take into consideration pricing competitiveness against other airlines in the respective markets. Having an attractive incentive system and a comprehensive sales tracking system provides impetus to win the loyalty of travel agents. At the heart of THAI’s operations is the appreciation that customer satisfaction bears significant impact on THAI’s future revenue. Therefore empowering, instilling teamwork mentality, emphasizing responsibility, service mindedness along with training provided to frontline staff to enhance their knowledge and familiarity of products, services and equipment to better serve customers and passengers are imperatives.

Customer Services In these times of fierce inter-airline competition, THAI understands the importance of delivering a memorable travel experience for its passengers. Thus THAI adopted new customer service strategies focusing on 3 key elements - Empowerment or customers’ freedom to choose from a variety of quality products and services; De-stress, that is, 100% staff effort to provide continuous, high quality services for a pleasant, uninterrupted travel experience and Delight, the feeling when expectations are far exceeded. After all, impressive service and

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memorable experiences are key considerations when making a choice of airline to fly. In 2005, THAI strengthened the quality of its services by launching its new Corporate Identity and the use of core concepts of Ayatana or satisfaction of the 6 senses of sight, taste, smell, hearing, touch and feelings from the heart. The Company also redesigned the cabin interiors of the new aircraft that were delivered in 2005 i.e. 2 Airbus A340-500s and 2 Airbus A340-600s as well as 3 Boeing 747-400s

and 1 Boeing 777-200 from THAI’s current fleet. In 2006, 9 more Boeing 747-400s and 7 more Boeing 777-200 aircraft will be refurbished. Improvements have been made to seat design and pitch between rows in Royal First, Royal Silk and Economy classes. Royal First and Royal Silk class lavatories have also been redecorated for a more modern and spacious look, with carefully selected amenities and personal products of the highest quality for THAI passengers. The new seats are larger and recline further. Royal First class seats recline 180 degrees, Royal Silk class seats provide more privacy and recline 170 degrees while economy seats are wider and more comfortable. As for in-flight entertainment on all new aircraft, THAI has installed the latest Audio Video on Demand (AVOD) system with individual monitors for each seat. Passengers have a choice of over 30 films, 70 documentaries, 600 musical selection and 30 video games as well as receiving news from leading news services, language lessons and even everyday Thai for visiting tourists. In addition, there are newspapers and publications as well as in-seat phones, fax on board, personal computer power outlets. THAI is constantly seeking ways to improve its in-flight meal service to suit passenger preference. THAI’s “Chef on Board” and “Restaurant in the Air” programs bring to the skies popular national delicacies of the respective destinations showcasing chefs from world renowned restaurants. In 2005, THAI served gourmet French cuisine to Royal First and Royal

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Silk class passengers on 6 inbound flights to Bangkok from Europe. THAI has also been working with The Oriental Hotel Bangkok to create special menus for passengers in all passenger classes on the Bangkok-New York flights. The system for advanced menu selection has been upgraded and in-flight menus are changed every 15 days instead of the previous monthly schedule. THAI supports the Government’s policy of promoting Thailand as the “Kitchen of the World” emphasizing the use of Thai herbs to promote health.

THAI recently changed its selection of onboard drinks and wine list. Wine experts have been consulted on the selection of the world’s finest wines to serve on board. Meal service equipment has also been changed and older equipment has been discarded. Food and drink quality has been improved using the TESCH principle - Taste, Eyes, Scent, Content and Health. THAI carefully monitors the efficiency and service-quality of its cabin crew by providing seminars and training to reinforce these strengths to complement the Thai charm and hospitality. To add a sense of “sanuk” or “fun” on board, the national airline created the “Fun in Festival” program whereby passengers celebrate holidays such as Christmas, New Year, Songkran, the birthdays of His Majesty the King and Her Majesty the Queen on board and enjoy a glimpse of fine traditions, festivities and gentle ways of life of the Thai people. There are many other projects aimed at improving the efficiency of in-flight service and customer satisfaction, as well as utilizing information technology. THAI Customer Satisfaction Surveys (TCSS), are used for benchmarking against peers, continuous quality monitoring, establishing Service Delivery Standard at every touch point, service operating procedures, ISO 9001 : 2000 to be completed in 2005, Thailand Contact Center and outsourced Global Call Center, which has just started and is to be completed in April of 2007, along with

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the Customer Feedback Management System (CFMS). THAI will also be implementing the Customer Relationship Management (CRM) system following the plan for 2006-2009 in order to enhance individualized service to passengers. THAI believes that the highest standard of service together with Thai-style hospitality and charm will keep customers satisfied and loyal to THAI, giving it an edge over its competitors and helping it to become Asia’s premier carrier and a world leading airline.

Flight Operations THAI’s main mission is the safe and on-time transportation of passengers and cargo to their destinations. Thus THAI places great emphasis on efficient and accident-free flight operations that meet the highest international standards. THAI recruits internationally qualified air crew sufficient to expand its route network and maintains the quality of its aviation personnel training at levels specified by the Department of Civil Aviation (DCA), the International Civil Aviation Organization (ICAO), the Joint Aviation Authorities (JAA), the Federal Aviation Administration (FAA) and the IATA Operational Safety Audit (IOSA) standards. THAI provides flight crew training with the latest technology and has upgraded technical training equipment, developed computer-based training at CBT Work Stations and e-learning to prepare for the Paperless Cockpit era. At the same time, THAI has reviewed procedures with regard to Flight Simulator training to improve its efficiency, reliability and ensure that simulation equipment and training quality remains at par with international standards so as to ensure sufficient pilots for the growing fleet of aircraft. With the aim of maintaining the highest level of operational safety, THAI conducts mandatory refresher courses and testing of pilots every 6 months. In addition to building crew confidence, the purpose is to ensure that all emergency procedures are conducted with accuracy and efficiency and ensure that all equipment is in a state of readiness. Flight Simulator take-off and landing records are evaluated regularly to detect potential accidents. In addition, pilots are updated through “Lessons Learned” case studies from the THAI Flight Safety International Handbook, which is published quarterly and also includes articles related to physical and mental health. In 2005, THAI implemented plans to recruit and train pilots in time for delivery of 8 Airbus A340 aircraft by December 2005 for the Bangkok-New York flights and other routes. Pilots and ground staff were sent to Toulouse, France, for intensive training.

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As part of its long-term pilot training program, THAI recently purchased an Airbus A340-600 aircraft flight simulator, to be delivered in April 2006. Not only will this simulator reduce training expenses for THAI pilots, but it will also generate income as it will be rented to other airlines for trainning during down time. In this era of soaring oil prices, the worldwide aviation industry is being adversely affected by rising production costs. Company-wide cost control policies have been implemented with emphasis placed on minimizing jet fuel cost, which constitutes the largest proportion of expense for airlines. THAI encourages effective fuel management practices, reducing unnecessary load on all flights, better planning and revision of procedures, to reduce fuel wastage. The success of these measures depends on the cooperation and coordination among various departments internally, as well as cooperation and coordination with other parties such as the Control Tower and other airlines, to reduce the Nation’s fuel consumption.

Standards and Safety Assurance Committed to becoming the “First Choice Carrier” of all customers, THAI started with its missions and core values in safety standards and international aviation security, because feeling safe and confident while traveling with an airline, is every passenger’s basic demand. Air safety standards and assurance, including air travel, customer service and the environment, is the responsibility of everyone in the organization, from top management to staff from every department. The Company has set clear and strict policies and objectives so that there are operational systems, performance standards, training, information systems, sufficient equipment as well as inspections, follow up and strict evaluations at corporate, departmental and staff levels. The aviation business goes on non-stop. THAI staff are ready to serve customers from around the world 24 hours a day and 365 days a year, with the highest safety standards that never stop as well. In addition to the highest technology and experienced and knowledgeable staff, we also believe that safety standards must be instilled into the hearts of all staff, so that they remain constantly vigilant every minute as they perform their duties. In December 2004, the World Health Organization (WHO) in Geneva, Switzerland, awarded a plaque to THAI for its initiatives in improving standards of airline hygiene and cleanliness. THAI was the first company from the private sector to receive this award.

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This resulted from the SARS outbreak. THAI was the first airline to draw up safety standards and a Biological Outbreak Operation Manual to provide safe environment in the cabins. Examples of procedures are antiseptic cleaning of 36 points of frequent passenger contact, inspection of cabin ventilation and changing of air filters more frequently than recommended by manufacturers. In addition, the airline has adopted national and international standards for dealing with Avian or Bird Flu, covering inspections of raw materials used for food preparation, production processes and inflight service. Passengers can be sure that poultry dishes served on board are both safe and hygienic. THAI is continuing its program “The Most Hygienic Cabin Environment” to reassure all passengers. Aware that jet fuel exhaust contributes to Global Warming and the Green House effect, THAI has cooperated with international agencies and set up procedures to reduce gas emissions causing the Green House effect and noise pollution during takeoff and landing. THAI follows International Civil Aviation Organization (ICAO) and International Air Transport Association (IATA) guidelines and adheres to the Kyoto Protocol which took effect in 2005 to undertake Emission Trading with other world airlines. THAI has put into effect environmental management strategies such as the Fuel Management Project and purchase of Airbus A340-500 and Airbus A340-600 aircraft which are not only more convenient and comfortable but also use technologies to reduce noise pollution and consume fuel more efficiently to reduce gas emissions and pollution. THAI has a master plan and environmental programs for the Suvarnabhumi Airport which underline the Company’s responsibilities towards the environment and local communities. THAI supports Suvarnabhumi Airport’s bid to become the most innovative and the Number 1 airport in Asia within the near future. Though basic safety standards have been set up that are mandatory, there are also voluntary standards, and the Company has been proactive in its efforts and will implement both, for the benefit of passengers. The various safety assurance standards and regulations involving business management and operations are implemented every day, in all related activities, with no exceptions. Examples are the international standards set by the International Civil Aviation Organization (ICAO), and the International Air Transport Association (IATA), aviation regulations from various countries, such as US Federal Aviation Administration (FAA) US Transport Security Administration (TSA) , the European Joint Aviation Authorities (JAA) as well as the Thai

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Department of Civil Aviation regulations, ISO 9001 (Quality Management System), ISO14001 (Environmental Management System), IATA Operational Safety Audit (IOSA), ICAO recommended practices, and other standards for maintenance and repair of aircraft and related equipment. Since situations and trends in business are in constant flux, THAI has made changes and continues to modernize its safety assurance standards and keep them in line with the current situation. For instance, the structure of Safety and Security Management functions was revised to bring about closer cooperation and more efficiency between senior management and operation staff. Safety and security survey and audit systems were set up for key businesses and joint flights with other airlines. Reporting systems have been improved so that both mandatory and voluntary reports are made. This instills responsibility about safety, reassures staff and creates the culture of a Learning Organization and sharing of knowledge, for the benefit of the Company, workteams and passengers. All THAI staff adhere to the Company Code of Ethics in operational practice, and a large part of this Code involves policies of safety and quality, safety and hygiene and the work environment. The scope, responsibilities and duties of staff are clearly outlined and are assessed in the annual evaluation. Despite advances of technology, safety standards for flight, service and environment will always have high priority for THAI. The Thai national identity, with its focus on detail and high level of responsibility, offers an advantage to THAI in maintaining safety standards. The Thai culture supports commitment to service, safety and fulfillment of duties, for the benefit of customers, society and the world.

Finance During the past year, THAI faced several financial challenges. This included fund raising, fund management, financial risk management and budgeting control to ensure sufficient funds and liquidity to cover the Company’s large investments and higher expenses caused by continued fuel price hikes and rising interest rates. The Company sought funds both in Thai baht and foreign currencies. THAI successfully issued Thai baht debentures with fixed interest rates to institutional investors and the public twice. On 20 October 2004, THAI raised THB 15,000 million to exercise the purchase option of operating lease of 6 aircraft. The payments of this operating lease were in US dollars and linked to US Libor. This resulted in financial cost saving and decrease in interest rate risk. On 12 May 2005, THAI issued the second offering of debentures in the amount of THB 15,000

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million to be used as down payment on new aircraft and working capital. The success of these offerings came from the “investment grade” rating of AA- given to the Company and its debentures by TRIS Rating Co., Ltd., which reflected THAI’s good performance and high ability to pay principal and interest. For foreign currency fund raising, on 23 November 2004, THAI was granted an exemption from the National Debt Creation Regulation B.E. 2528 by the Cabinet. This allows

the Company more flexibility to seek offshore funds. During this year, THAI financed and took delivery of 2 Airbus A340-500 aircraft and 2 Airbus A340-600 aircraft in Euro currency in the form of Asset Based Financing guaranteed by European Export Credit Agencies (ECA) for a total of Euro 346.59 million. During this fiscal year, THAI repaid the loan principal in the total amount of THB 11,063 million and acquired more funds from issuing Thai baht debentures and financing new aircraft in the total amount of THB 47,562 million. This resulted in the increase in long-term loans and liabilities under financial leases (including current portion of long-term loans) from THB 91,791 million at the end of fiscal year 2004 to THB 120,865 million at the end of fiscal year 2005. For foreign currency risk management, THAI swapped USD and THB denominated debts to Euro apart from financing the new aircraft in Euro as mentioned above. This was to improve the matching of currency mix of its debts and net cash flow from operation. THAI entered into Cross Currency Swap Agreement (CCS) to swap USD 144.56 million of the USD denominated loans with floating interest rates and THB 2,400 million fixed rate debentures to Euro denominated loans with fixed interest rates. For interest rate risk management, THAI entered into Interest Rate Swap Agreement (IRS) to swap the floating interest rates to fixed for Yen 26,013.59 million of the Yen denominated loans and for Euro denominated loans of 2

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Airbus A340-500 aircraft and 1 Airbus A340-600 aircraft amounting Euro 252.73 million. As a result of the new funding policy and risk management implementation, THAI’s foreign currency and interest rate risk was reduced. The proportion of THAI’s debts in each currency i.e. USD:EUR:YEN:THB, changed from 41:0:41:18 at the end of fiscal year 2004 to 17:21:26:36 at the end of fiscal year 2005, respectively. This represents the better matching of currency mix between THAI’s debts and net cash flow from operations. In addition, the

portion of fixed interest rate increased from 66% to 79% during the same period. To increase the efficiency of cash management, internal control, cost reduction and opportunities to gain more benefit from short-term investment, THAI is in the process of adopting internet banking for treasury work covering more than 61 overseas stations around the world. The internet banking solution is implemented under the project called “Global Account”, which will allow THAI to centralize its treasury activities and has real time capability to manage its funds. It is expected to implement the new global banking system by the beginning of 2006.

Information Technology Information Technology (IT) is a vital tool for THAI in achieving operational efficiency, competitive edge and business success. THAI is committed to expanding its IT operations and using IT to support financial control, customer service, internal control process, enhance and support learning and growth. THAI is currently seeking ISO 9001:2000 certification for its IT service processes to ensure efficiency and best practice in service delivery. E-learning is also being introduced into various training courses to improve staff knowledge and skills to meet the changing environment and effectively execute tasks with the aim of lifting overall service standards to the forefront of the airline industry.

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The Corporate IT Committee was established and entrusted with enhancing THAI’s IT infrastructure, to oversee the development of IT backbone and to use IT to enhance overall operational efficiency. The Committee is also charged with the responsibility of integrating all IT systems to increase efficiency in information management, meet the needs of the changing internal and external environment, including system maintenance. The IT master plan encompasses THAI’s short and long-term IT strategy emphasizing commonality and shareware capability, security, reducing investment redundancy and adding value to THAI’s products and services. A separate committee was established and charged with enhancing utilization of available information to effectively support customer service. This is a major step towards propelling THAI into the digital age emphasizing data and information use. Despite facing difficulties on many fronts, THAI is steadfast in its intention to expand its electronic service channels to support each touch point of the Magic Service Ring. The redesigned website www.thaiairways.com serves to provide consistency with THAI’s re-branding efforts and to better facilitate customer interface for product and/or service information. Royal Orchid Plus passengers are able to use the iCheck-in service to check in themselves and members of their party booked under the same reservation code along with the ability to select seating via THAI’s website. E-Payment capability is currently being developed while the ability to track cargo and cargo flight information is accessible via the www.thaicargo.com website. Electronic tickets can be purchased for any eligible destination operated by THAI and Star Alliance carriers on the same ticket via the interline e-ticketing service. THAI, in conjunction with qualified consultants, is developing a new Procurement Management System to enhance efficiency. The plan is for the system to be operational by early fiscal year 2006. The new system will cut the procurement process time in half and can be modified and used with the e-Auction and e-Sourcing systems. The e-EMM system is designed to manage meetings more effectively providing management with the flexibility to search for reference documents and enables management record keeping during meetings. Various business intelligence tools have been incorporated into the decision making process of various business units to assimilate and analyze data and prepare reports as required by the various departments e.g. sales and revenue management reports for the Commercial Department. Essential to THAI’s plan going forward is the development of an integrated information

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network with a centralized data warehouse that will enable the efficient compilation of the whole company’s operations, which can then be used for general, in-depth and multidimensional analysis. The graphic presentation of compiled information and key benchmark indicators is currently being developed for use by senior management for decision making purposes in the Management Cockpit. As for IT developments at Suvarnabhumi Airport, THAI plans to set up two IT Centers, one at the Operations Center (OPC) Building and the other at the Aircraft Maintenance (ACM) Building with Redundancy Backup. There will be a local area network (LAN) with Gigabit communication speed including wireless access points as well as having an emergency network backup system. This will enable employees to conveniently access the same network and execute tasks more efficiently. The Suvarnabhumi LAN network will be linked with THAI’s central data warehouse at the Head Office using the Telephone Organization of Thailand’s (TOT) high speed Metro LAN system. THAI is confident that the IT system will be able to support and meet the objectives as set for THAI’s operations at the new Suvarnabhumi Airport.

Suvarnabhumi Airport As the national flag carrier, THAI has made major investments in the new Suvarnabhumi Airport, which is also supportive of the Government’s objective of making this airport the aviation hub for Southeast Asia. Six state-of-the-art facilities were constructed (2003-2005): to improve efficiency and to provide a full range of service: 1. Cargo and Mail Commercial 2. Aircraft Maintenance Center 3. Catering Services 4. Ground Support Equipment Services 5. Operations Center 6. Ground Customer Services THAI has invested enormous resources to ensure that all facilities are completed on time and ready when the new airport is opened. Every stage of the move from Bangkok International Airport (Don Muang) to Suvarnabhumi Airport has been carefully planned, to ensure smooth operations on the first day. A progress report on facility construction for the period from 1 October 2004 to 30 September 2005 is as follows:

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1. Design and Construction of 5 facilities Design and construction of 4 facilities, namely Aircraft Maintenance Center (ACM), Cargo and Mail Commercial (CGO), Catering (CAT), and Ground Support Equipment Services (GSE), were substantially completed by 31 March 2005. The Operations Center (OPC) was substantially completed by 30 September 2005. When its buildings at Suvarnabhumi Airport become operational, THAI can be

proud of efforts made to conserve energy and protect the environment. The latest in technology is being used to help manage and control systems within the buildings and to automatically adjust energy usage to the optimum level, utilizing energy saving materials. In addition, THAI is working with outside agencies to channel surplus energy from electricity production for the new airport to make cold water and steam in THAI’s Flight Kitchen. This not only saves investment in equipment to produce cold water but also supports the efficient use of energy. 2. Purchasing and Installation of Special Tools and Equipment Purchase and installation of special tools and equipment is progressing as scheduled. All fix-in systems will be in place by December 2005 and computer related networks and special tools and equipment will be installed by March 2006. 3. Moving Base of Operations A memorandum of understanding was signed between THAI and the Electricity Generating Authority of Thailand (EGAT) for EGAT to assist in the process of moving heavy equipment and materials from Bangkok International Airport (Don Muang) to Suvarnabhumi Airport. With regard to preparing employees for the move, THAI set up an exhibition with models of each building and a general view of the whole of the new airport so that

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staff are able to familiarize themselves with facilities before actually moving. THAI has also coordinated transportation to and from Suvarnabhumi Airport for its employees. Staff have also been informed regarding housing projects that are under development in and around the new airport. 4. Financial Aspects Although cost of construction materials rose drastically during fiscal year 2005 and

time for construction was limited, THAI managed to keep costs within budget. Operating Plans for 1 October 2005 - 30 September 2006 In drafting operating plans for fiscal year 2005, THAI based its assumption on Suvarnabhumi Airport becoming operational in mid 2006. So the plan for fiscal year 2006 is to continue interior decoration work in the Passenger Terminal Complex allocated for THAI. These are the Exclusive Premium Passenger Service area, the Royal First and Royal Silk Class lounges and facilities, the ticketing office and office areas. Work will take approximately 5 months from receiving permission from the Airports of Thailand Public Company Limited (AOT) to commence work. Moreover, THAI has carefully planned the move of its operations from Bangkok International Airport and its flight and ground operations at the new airport.

Human Resources and Training With the goal of becoming the world’s leading airline in services and customer satisfaction, THAI has spearheaded personnel development plans to assist staff in all departments in order to achieve higher levels of professionalism and service efficiency, while retaining THAI’s unique charm for an added competitive edge. To achieve its goals, THAI focuses on important strategies and development plans.

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Requests for organizational changes and additional staff are carefully examined to ensure appropriateness and optimal suitability for operations and size. The Company has initiated Manpower Planning programs in order to allocate manpower that is consistent with quality and workload, also taking into consideration the types of operation, work overlap and efficiency in managing personnel cost. In addition, Career Path and Succession planning are conducted to prepare staff for future growth with business expansion. The main mechanism driving management and personnel development is the competency-based management system, which supports professionalism and principles of good governance. THAI has linked this with its information technology system so that training and assessment of individuals, functions and organizations can be stored and assessed, with the aim of managing human resources and creating strategies to instill core values and attitudes in line with the Company’s vision and mission. Recognizing the value of good personnel to service industries in these competitive times, THAI provides comprehensive training to its staff in the form of required and complementary courses based on core competencies and management skills. THAI combined the diverse training units of various departments into a centralized Training Center for greater efficiency and effectiveness. Professional courses cover Passenger Service, Airport Services, Security in Passenger and Cargo Transport, Marketing, Language, Culture, Commerce and General Management. Courses give staff of all levels the opportunity to broaden their knowledge, sharpen their skills and exchange ideas and experiences with fellow employees. THAI also partners with leading educational institutions locally and abroad to organize training and seminars on a regular basis. THAI organized the Orientation and Familiarization Coach Team (OFCT) project to brief staff moving to Suvarnabhumi Airport on the facilities and operational scope in order to improve efficiency and to create an information network. A Language and Culture Institute was also established to improve the language skills of its staff. Frontline staff, in particular, are encouraged to develop multilingual skills so that they can communicate appropriately and intelligibly with passengers of different nationalities and cultures to create customer delight. THAI considers English language proficiency a core competency, requiring staff to attend English language development courses and achieve a certain level of proficiency. The Company’s international language programs cover training in Chinese, Japanese, French, German, Korean, Hindi, Italian and Spanish. Russian language courses will be offered to

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correspond with the introduction of Bangkok-Moscow flights. The focus is on communicating clearly with passengers. Language training is supplemented with courses on culture. Electronic Learning or e-Learning has also been incorporated into all training programs to help economize on expense and investments. Performance Management Systems are constantly being improved through systematic evaluation and merit-based reward systems. The Performance Management Project helps executives develop transparent and fair systems to reward outstanding performance, and in meeting deadlines, in line with the objectives, strategies and vision of the Company. The Company has a strong focus on good governance and has established a Good Corporate Governance Committee to ensure good ethics. THAI strives to make good governance an integral part of its corporate culture, ensuring every staff member understands the importance of ethical behavior in the workplace. A video tape about good governance is shown before every training course. In addition, Coaching Teams from various Departments will be trained and serve as role models. THAI has various internal communication channels to update its staff on current events and important information. Communication channels are chosen as appropriate and include news releases, posters, leaflets, “DB News” newsletter, the electronic board, public address announcements, Interactive Voice Response (IVR), and the THAISphere intranet system. In this electronic age, communication is rapid and widespread. Due to the popularity of the THAISphere intranet system, the HR Homepage was developed in 2005.

Business Unit Operations Ground Customer Services To achieve its mission of being a Customer-Driven Organization, Ground Customer Services has doubled its efforts to provide services that exceed customers’ expectation through enhancing its corporate image and identity, launching of new services and products, and improving its technological capabilities. Corporate Image and Identity: New airport signage at various customer touch points including the Royal Orchid Lounges has been introduced, in line with the launch of THAI’s new corporate identity. The new identity also appears on all printed materials such as boarding passes, luggage tags etc. The new corporate identity was inspired by the graphic mural painted by

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contemporary Thai artist Panya Vijinthanasarn that represents the six senses: sight, taste, smell, hearing, touch and feelings from the heart. This concept of Ayatana echoes in the images and services at the various Airport Terminals. New Services and Products: The seven Royal Orchid Lounges in Bangkok Airport’s international and domestic terminals as well as all THAI lounges in overseas and domestic airports will be refurbished with the new corporate identity, both in motif and color scheme. The Hong Kong and Chiang Mai lounges, the first to be redecorated as prototype lounges have been completed in September and October 2005 respectively. Due to increasing worldwide competition within the airline industry, Thailand’s national carrier must constantly strive to incorporate the latest technology in ground service. THAI will be ready for the opening of Suvarnabhumi Airport with new products, services and facilities that are on par with major international airports and yet still retain that special Thai touch that has impressed our passengers over the past decades. IT System and Technologies: Enhanced IT systems that have been installed include: Wi-fi / Internet in Lounges Since 1 May 2005, computers in all 7 Bangkok International Airport lounges have been installed with wireless fidelity technology, allowing passengers to enjoy high speed internet and wireless mobility. Internet Check-in Since 16 May 2005, passengers have been able to perform self-service check-in via THAI’s website www.thaiairways.com 2 to 24 hours prior to departure time from all THAI Departure Control System - DCS online stations (currently 42 stations). Self-Service Check-in Kiosks Self-service check-in kiosks at Bangkok International Airport and at provincial airports in Chiang Mai, Chiang Rai, Phuket, Hat Yai, Khon Kaen, Phitsanulok, Udon Thani and Krabi are being upgraded with appropriate technology, to improve passenger convenience. Thailand Advanced Passenger Processing System THAI, the Airports of Thailand Public Company Limited (AOT) and the Thai Immigration Bureau (TIB) are working together on a system to process passenger information in advance and provide dedicated fast lane access for THAI’s pre-checked inbound and outbound passengers at Bangkok International Airport

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and Suvarnabhumi Airport. Mobile Information Communication System High technology products such as Mobile Information Communication Systems (MICS) / PDAs and Mobile Vehicles (MV) will be introduced in fiscal year 2006 to improve staff efficiency and deliver superior customer service. With the incorporation of new technology to facilitate service, THAI will be ready to compete in the new era of high customer expectation and strengthen its image upon beginning operations at Suvarnabhumi Airport.

Ground Support Equipment Services With clear management strategies, market focus and risk management policies, the Ground Support Equipment Services Department was able to achieve another year of good performance. The Department generated an increase of 144.8 million baht or 11.5% in earnings from last year from customer airlines at Bangkok International Airport and other airports in Thailand. Though the number of customer airlines held steady at 52, there was a 36.03% increase in the number of flights served, giving THAI a 59% market share. Aggressive marketing efforts were taken to secure loyalty from existing customers as well as attract new customers and tap into the customer base of Alliance partners. The Ground Support Equipment Services Department worked closely with Customer Service, Cargo and Catering to provide full service to meet customers’ needs and to promote each business unit’s services. The Department continues to maintain its high standards of service that are equal to those of the best ground support service providers around the world. It achieved ISO 9001 version 2000 certification, IATA AHM804 Service Level Agreement and ensured SECURE CLEAN cabin sanitary standards in compliance with the Aviation Security Act of 1982. In 2005, more than 1.2 billion baht has been invested to upgrade ground service equipment i.e. loading/ unloading equipment, transportation and maintenance tools for use at both Bangkok International and Suvarnabhumi Airports. The latest information technology systems have also been acquired, namely the Resource Management System (RSMS), a product of Sabre Streamline, used for equipment and labor planning and management, and the GSE Maintenance Management System (GMS) from SAP R/3. The Department has not neglected the human element either. It has provided training to more than 3,500 THAI equipment operators and outside workers to enhance their skills and knowledge. With its emphasis on safe and hygienic work environment, for the past 5 years THAI’s Ground Support Equipment Services have received outstanding recognition awards on the

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national and provincial levels for “Safety at Work Excellence”. It also received certification as a maintenance provider for Unit Load Devices (ULDs) from the Civil Aviation Department, Ministry of Transport, thus enabling the offering of its maintenance service to ULDs of all airlines operating in Thailand. With regard to Suvarnabhumi Airport, THAI has invested over 2 billion baht in building the Ground Support Equipment Maintenance Center which has a more spacious work area

and will be equipped with modern facilities and equipment, the latest information technology, and a larger number of maintenance teams. Customers can be assured of timely and comprehensive service with high safety standards that equal to any and help to support Thailand’s role as the regional aviation hub.

Cargo and Mail Commercial With the aim of becoming the first choice carrier among freight and mail service forwarders around the world, THAI has intensified its efforts to raise service quality, utilize marketing strategies and provide added value to customers following its policy “the customer is the key to service” under the theme “THAI Cargo Thai Care”. During the past year, THAI inaugurated flights to New York, effectively expanding the cargo network. THAI added value to its services by focusing on hygiene and cleanliness of handling equipment, especially in the fashion apparel and orchid industry, as well as improving the transportation process in order to attract new customers to use its cargo services on new routes. At present, TGForce service (express cargo for time-definite shipments) has been expanded to cover 38 international destinations, giving greater coverage in Europe, the United States of America, Japan, China, Hong Kong, Korea, Taiwan, Singapore, Malaysia, Pakistan,

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Sri Lanka, Vietnam, Australia and New Zealand. THAI is stimulating markets with sales promotion activities and heightening customer satisfaction with added value and superior services over the competition. Advertising and printed materials have been redesigned to produce more impact and gain the confidence of target audiences. The Cargo Contact Center or 3C will be set up as a coordination center to provide customers with a convenient point of contact where cargo warehouse services and

cargo information can be easily accessed. THAI also uses information technology to help customers, shippers, recipients and interested parties track shipments and check status by themselves through the www.thaicargo.com website. The website is now being upgraded to accept cargo reservations through the e-booking system. In addition, THAI is building a database of customer information profiles and developing a Customer Relationship Management system so as to better meet the needs of its current and future customers. In order to expand air cargo activities to new markets with good potential for growth, THAI joined the government and private sectors in participating in various international exhibitions e.g. the China ASEAN Expo 2004 in Nanning, SITL China 2005 in Shanghai and the Air Cargo Europe 2005 in Munich, Germany. Domestically, THAI was involved in Logistics Asia 2004 held at BITEC and Thailand Logistics Fair 2005 at Queen Sirikit National Convention Center. THAI supports the government policy of creating effective logistics through the linking of land, water and air transport, in preparation for the opening of Suvarnabhumi Airport in 2006.

Catering Services In support of THAI’s goal of becoming the world’s leading airline in Asia, THAI’s Catering Department constantly upgrades its services and expands its scope of operations.

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Recent developments include: Cooperation with Kasetsart University to improve nutritional value and hygiene of raw ingredients used in the catering services through the Good Agriculture Practice (GAP) system. In-flight menus and meals representative of an “International Kitchen” through the hiring of head chefs from different countries including Italy, Japan, Switzerland and China to achieve authentic taste and appearance of dishes. Serving dishes from the world’s top restaurants and hotels, for example the world’s best Thai, French, Italian, Chinese or Indian food. Thai culinary training for in-flight caterers from other countries providing in-flight meals for THAI flights, to better understand Thai cooking and produce authentic Thai taste. Support for the Government ’s “Thailand : Kitchen of the World” project through promoting the health benefits of Thai herbs and spices in the finest Thai cuisine. Expansion in catering activities is evident in the enormous investment in new facilities at the Suvarnabhumi Airport. The Catering Services is one of the 6 key activities that will be moved to the new airport, which the Government hopes will become the passenger and cargo center for Southeast Asia. The new Catering Services, with a total area of 95,000 square meters, will be ultra-modern and semi-automated. Automated systems include the Building Automation System, Cooking Process Management System, Vacuum Waste System and Material Handling Bin System. With a focus on quality, hygiene, safety and security, the facility will be capable of handling 65,000-70,000 meals per day initially and up to 87,000 meals per day within 5-10 years. Estimated income for the first year is 6.1 billion baht or an increase of 5.7% from the current level. In order to build the nation’s reputation as “Thailand : Kitchen of the World” and earn more company income, THAI Catering cooperated with the Ministry of Natural Resources and Environment in opening a Thai Food Pavilion at the World Expo 2005 in Aichi, Japan. The Thai Food Pavilion’s “Tom Yam Kung” noodle soup was extremely popular and voted “Superb Meal” in this event. In addition, THAI Catering plans to expand business in various ways, i.e. partnering with alliance airlines in overseas catering operations, opening Puff and Pie Bakery franchises, catering domestically and internationally for large or special events and opening airport restaurants both locally and internationally.

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Aircraft Maintenance Services THAI’s maintenance services are aimed at consistently providing passengers with the highest levels of safety and generating revenue through services offered to customer airlines from around the world. In 2005, a total of 25,019 line and light maintenance services were provided to THAI’s fleet of 87 aircraft and 35,571 line and light maintenance services to aircraft from other airlines transiting Bangkok. In addition, 432 A-Check maintenance procedures were conducted. As for major repairs, 10 customer airlines received airframe overhaul services while THAI’s fleet underwent 30 C-Checks and 9 D-Checks. Major engine maintenance was performed on 66 THAI and customer aircraft. In 2005, THAI enjoyed a successful year for marketing airframe overhaul services as customer airlines were highly satisfied with work performed. Japan Airlines Domestic (JALJ) entrusted THAI with cabin modification and special checks on 4 Airbus A300-600 aircraft and sent 4 Airbus A300B4 aircraft and Airbus A300-600 aircraft for C-Checks and RC-Checks respectively. Since 2000, THAI has provided these maintenance check services to a total of 25 JALJ aircraft. Airframe overhaul maintenance service has even extended to European clients with Lufthansa Technik (DLH/LHT) sending its first Airbus A300-600 aircraft Reg. D-AIAS for IL2-Check in February of this year and may send 4 more aircraft at the end of the year. As cooperation between Star Alliance members, Lufthansa Technik Shenzhen (LTS) entered into an agreement with THAI on 11 January 2005, to provide repair and maintenance for CFM56-3 fan thrust reversers for THAI’s Boeing 737-400 aircraft. Another of THAI’s customers for major overhaul services is MIAT Mongolian Airlines, the national carrier of Mongolia. Its Airbus A310 aircraft Reg. F-OHPT received an IL2-Check in March 2005. Since this aircraft is registered in France, repair and maintenance work must meet the stringent safety standards of the European Aviation Safety Agency (EASA). By December 2005, THAI will have taken delivery of 3 new Airbus A340-500 and 5 Airbus A340-600 aircraft. Plans are in motion to install new Royal First and Royal Silk class seats, upgrade the In-Flight Entertainment system (IFE) to a Matsushita S3000i system and install luxurious new curtains and carpeting to match the colors of the new Corporate Identity in 12 Boeing 747-400 aircraft and 8 Boeing 777-200 aircraft by 2006. As for the new Boeing 777-200ER aircraft scheduled for delivery next year, the Technical Department has started to purchase needed equipment and materials and train mechanics in Line/Light Maintenance operations on engineering standards.

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THAI is employing pro-active strategies in managing its stock in order to reduce capital investment and expenses. It set up a THAI/GE on-site warehouse within the Technical Department to store CF6-80C2 engine spare parts. This reduces not only investment and freight expenses but also the chance of aircraft AOG (Aircraft on Ground). Savings are estimated at around 20-25 million baht per year. THAI has also placed surplus hardware items on consignment with Fairchild Fastener Company and United Aviation (Singapore)

Company resulting in savings of 10-12% per year. The Technical Department has further planned to develop its Engine Shop to be a Center of Excellence for repair and overhaul of CF6-50 and CF6-80 engines by entering into a Memorandum of Understanding (MOU) with GE Engine Services Incorporated (GEES) on 27 September 2005. In this regard, GEES is to extend support by increasing capacity of the on-site warehouse to be a logistics center at Bangkok, training and experience transfer including joint marketing to potential customers. Since the implementation of the Six Sigma project, 133 programs have been implemented, with a potential saving of 2,477 million baht through the use of green and black belt resources. With regard to staff training, THAI is concerned not only with aircraft maintenance and repair knowledge and skills so that technicians can work efficiently and to international standards, but also with the human factors. “Human Factors in Aviation Maintenance” courses help technicians to deal with cooperation, safety and team relationships within the system. THAI’s Technical Department signed a contract to install and upgrade its information technology systems for aircraft maintenance called SIAM (System Integration for Aircraft Maintenance), this new system should take around 24 months to install, but once operational will create greater efficiencies and speed, and maximize customer satisfaction.

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As for the status of construction of the Aircraft Maintenance Center at Suvarnabhumi Airport, the Project Management Office reports steady progress. Construction as well as testing of all systems at the new Aircraft Maintenance Center at Suvarnabhumi Airport will be completed in time for the official opening. The Technical Department continues to provide the highest standards of repair and maintenance services, certified locally and abroad by such notable organizations as the US

Federal Aviation Administration (FAA) and the European Aviation Safety Agency (EASA). THAI is committed to constant upgrading of safety standards for commercial aviation, the environment and its employees. Currently, the Technical Department is holding the ISO 9001 : 2000 for quality management and the ISO 14001 : 1996 for environment.

Social Contribution and Promotion of Thai Identity Beyond the success of its operations as a national flag carrier that ranks among the leaders in the airline industry, THAI is proud to take a leading role in promoting Thailand’s identity to the world and its ongoing social contributions at home. Some of these activities include: 1. Supported the Thai Rice Foundation in printing, “Rice from Our Father” to celebrate the diamond jubilee of His Majesty the King’s coronation. This is to remind all Thais to preserve the culture and preserve the land that has provided sustenance for its people. 2. Established a Tsunami Relief Center to help passengers stranded at Phuket and Krabi Airports. THAI transported relief donations, equipment, doctors, volunteers and military staff to Southern Thailand on special flights. Food and drinks were also provided from THAI’s Flight Kitchen.

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3. Transported secondhand wheelchairs donated from Japan to tsunami victims in Southern Thailand. 4. Organized activities to boost morale for people affected by the tsunami in cooperation with the Royal Thai Army and Nok Air. 5. Promoted “Island Fun, Island Discounts” to draw tourism back to Thailand’s Andaman Sea area. 6. Sponsored the 2005 Miss Universe Pageant as Official Carrier to promote tourism to Thailand. 7. “THAI helps Thai Shrimp Farmers” project, organized in cooperation with the Department of Internal Trade under the Thai Ministry of Commerce, to help mitigate weak shrimp price. THAI created special menus using Thai white shrimp to serve passengers on international and domestic routes along with other agricultural products such as longan, long kong and mangosteen from the Thai Ministry of Agriculture and Cooperatives. 8. Provided “Thailand Pass” travel cards, in cooperation with 5 mass transit organizations (State Railway of Thailand, The Transport Company Limited, Mass Rapid Transit Authority of Thailand, Bangkok Mass Transit System Public Company Limited and Bangkok Metro Public Company Limited) to promote tourism during peak tourism season. 9. Sponsored free air tickets for members of the selection committee for the Mahidol Award and the Princess Mother Foundation Award to recognize international doctors and nurses for outstanding service. 10. Sponsored free air tickets for youth football players to attend the basic training program with Arsenal Football Club. 11. Opened a library and donated financial support for children with HIV at Grada House, Lopburi Province on Children’s Day. 12. Supported activities for “Buddhism Week” on the occasion of Visakha Bucha Day. 13. Donated Thai musical instruments to schools in need on Children’s Day.

Corporate Identity Keeping in mind the value of Thainess and in recognition of the importance of branding that is readily recognized by consumers, THAI launched its re-branding campaign reflecting 3 main themes:

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1. High Trust: Assuring high safety standards, on time operations and attentiveness to passenger comfort and well-being 2. World Class: Reflecting the goal of being a global leader in the aviation industry 3. Thai Touch: Charming THAI passengers in every way with unique travel experiences with touches of Thai New Philosophy The new corporate identity embodies the concept of Ayatana , the 6 sensory perceptions of sight, taste, smell, hearing, touch and feelings from the heart. The brand essence encompasses enlightment of the soul, stimulation of the senses and appeal to the heart, to deepen relationships between the giver and the receiver. THAI’s New Service Philosophy

Ayatana of THAI, the giver

Ayatana of the receivers - Customers and Passengers

The 6 senses:

The 6 senses:

Sight : Pleasing to the eye

Eyes : Attractive and appealing

Taste : Appealing to the taste

Tongue : Palatable

Smell : Appealing to the sense of smell

Nose : Fragrant and refreshing

Hearing : Appealing to the ear

Ears : Melodious

Touch : Soft and smooth

Body : Relaxing and soothing

Heart : Thoughtful, kind and generous

Heart : Satisfied and content

The new THAI brand is a modification of the old and is reflected in all of THAI’s products, aircraft livery and across all of THAI’s customer touch points. Changes to branding and services were made to demonstrate that THAI is ready to impress customers at every touch point, from first contact, before, during and after each flight.

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Thai Airways International Public Company Limited


Airline Business and Competition

The further liberalization of Thailand’s air transport industry in 2005 by the Thai government is likely to bring in more competition. There has been an emergence of new carriers, an increase in flight frequency of international airlines to Thailand and the expansion of privately-owned Thai airlines flying to international destinations and the proliferation of low cost airlines now operating in Southeast Asia to meet the growing number of passengers, which increased dramatically during the first quarter of fiscal year 2005. However, in January 2005, passenger volume dropped drastically after the Asian tsunami. Then there was the skyrocketing fuel price bearing negative repercussions on the economy, travel, trade and the operating results of all airlines around the world.

Passenger Transportation During the first half year of 2005, the international passengers around the world rose by 8.7%, which is high, but still lower than the previous year. China and India’s traffic rose significantly while traffic to Thailand expanded only moderately, due to direct impact of the tsunami. In Thailand, even though low cost carriers have stimulated new demand, the problems of spiraling fuel cost, the economic slowdown, natural disasters, and terrorism and unrest in the South created unavoidable repercussions on the airline industry, affecting even the survival of smaller airlines. In the longer term, the International Air Transport Association’s (IATA) forecast is for an annual rate of 8.2% growth in international traffic from / to Thailand through 2008.

Cargo Transportation IATA’s forecast is for Thailand’s air cargo demand to grow by an average of 7.7 % annually until 2008. This is because several countries in Southeast Asia serve as production bases for various export related industries where investment cost is relatively low while there is sufficient technologically - oriented skilled labor. The level of agro-based product production in the region is high, and needs to be transported to various parts of the world. Although there has been a shift towards increased investments in China and India, as investment costs are lower, it is not likely to slow down in cargo demand.

Domestic Airline Competition As the national flag carrier, THAI is a full service provider serving the domestic market. THAI remains the dominant carrier serving the domestic market but has been joined by 6 other airlines, as there has been a rapid expansion of domestic air travel, in which THAI has seen a drop in market share. THAI, however, commands a 44% market share and has code share flights with various domestic airlines to provide services to destinations currently not operated by THAI.

International Airline Competition Currently, there are 80 airlines providing scheduled international services to and from Thailand, 5 are registered as Thai carriers and 75 are foreign. THAI’s share of international traffic was 40%, Thai carriers 7.2%, and foreign carriers 52.8%. THAI remains the market leader. The next airline, a distant second, commands 4.3% of international traffic to and from Thailand. In order to compete with foreign carriers, THAI has upgraded its passenger service, particularly on intercontinental routes. THAI upgraded its in-flight products, for instance, luxury seats and in-flight entertainment system, with the aim of increasing quality revenue through added value. Annual Report 2005

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Risk Management and Risk Factors

Because of the heightened competition within the domestic and international airline industry, THAI has had to adapt quickly to changes and maintain flexible management strategies. THAI includes risk management as one of its management tools in observing good corporate governance and best practice. The Risk Management Committee was established to oversee effectiveness of risk management while the Risk Management Department was charged with the responsibility for setting up risk management systems, risk identification procedures and evaluation approaches both internally and externally. The department heads are responsible for monitoring to ensure that risks remain within the established tolerance levels. This also includes having an effective communication channel and providing training on the importance of risk management and ultimately how to achieve business objectives for staff. The Company has set risk limits and risk tolerance levels to serve as Early Warning Indicators to assist management in controlling risk and help decision making with more confidence. A comprehensive business contingency plan is also in place.

Risk Factors THAI believes that risk management is an important element of good corporate governance and the process is embedded on an enterprise-wide basis. Top management must closely monitor corporate level risks, whereas the control of departmental level risks is the responsibility of all department heads. Moreover, THAI constantly revises its corporate strategy and marketing plans to reflect changes in the operating environment to achieve its business vision and objectives. Management must ensure that risks that could have adverse impact on THAI’s ability to achieve its objectives have risk management guidelines in place. This demonstrates that THAI operates its business under the principles of best practice and complies with the Stock Exchange of Thailand’s (SET) guidance and principles of good corporate governance.

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Investors should consider these key risk factors having impact on THAI’s operating performance: 1. Jet Fuel Price Fuel cost is a major expense for the Company and represents 30.48% of total operating expense. An increase of one US dollar per barrel in jet fuel price will cause the Company’s fuel expense to increase by approximately 17 million US dollars annually. THAI’s average fuel hedging for each quarter of fiscal year 2005 was 20%, 34%, 23% and 14% respectively. Fuel price is constantly monitored and hedging strategies regularly adjusted to better suit market conditions. In addition, fuel price management software is being used to assist in the process of making hedging decisions. 2. Foreign Currency Exchange Rate Fluctuation THAI generates revenues in more than 40 currencies while incurring expenses mainly in 4 currencies (US Dollar, Yen, Euro and Baht). Before this fiscal year, THAI had debts mainly in 3 major currencies (US Dollar, Yen and Baht), resulting in significant economic exposure to fluctuation of foreign currency exchange rates. Therefore, THAI has adopted “Natural Hedge” strategy to manage these risks by increasing the matching of currency between the revenue and expenses and the currency mix between its debts and net cash flow from operation. As THAI’s net cash flow was long in Euro and short in US Dollar and Baht, THAI has increased Euro denominated loans by borrowing in Euro for new aircraft and swapping existing USD and Baht denominated loans into Euro. During this fiscal year, the Company financed and took delivery of 2 Airbus A340-500 aircraft and 2 Airbus A340-600 aircraft in Euro currency amounting EUR 346.59 million. Furthermore, THAI entered into Cross Currency Swap Agreement (CCS) to swap USD 144.56 million of the USD denominated loans with floating interest rates to Euro denominated loans with fixed interest rate. In addition, THAI also swapped THB 2,400 million fixed rate debentures to the Euro denominated obligations with fixed rate. At the end of fiscal year 2005, the Euro denominated loans have been increased from zero to 21%. As the result of continual financial risk management for foreign exchange fluctuation, the Management, with consent of the Risk Management Committee, confirmed their agreement to bring down this risk factor from Corporate Level Risk as they are confident that the degree of impact will fall within the acceptable risk level. 3. Migration Plan - Suvarnabhumi International Airport THAI’s base of operations will be moved from Bangkok International Airport (Don Muang) to Suvarnabhumi Airport upon the opening of the new airport. THAI is aware that it may face certain risks

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and obstacles upon migration to the new airport, including unforeseen events that might occur. THAI has, therefore, set up an appropriate contingency plan to ensure smooth transition. A team of consultants has been engaged from ICAO (International Civil Aviation Organization) to make preliminary studies and to consolidate all the plans into a Master Migration Plan, which will be adhered to closely and assignments will be clearly divided among the concerned business units well in advance of the move. 4. Competition from Open Skies Policy The Open Skies Policy has been adopted by the Thai Government aiming to promote Thailand’s tourism as well as to develop Bangkok as an aviation hub by allowing foreign carriers to carry third and fourth freedom traffic into Thailand with unlimited frequency and capacity. The government has granted fifth freedom rights to some foreign carriers who can now compete with THAI on all routes, and will consider giving full liberalization in the near future. THAI is well aware that the government’s open skies policy will effectively contribute to tourism growth, but at the same time it poses new threats for THAI. Measures have been launched to counter the competition by revising its marketing plan by entering into more cooperation with alliance partners in order to cope with intense competition from all directions arising from the open skies policy. 5. Impact of Low Cost Airlines In addition to competition from traditional airlines, THAI also has to contend with increasing competition from low cost airlines both on domestic and international routes. Passenger demand for low cost airlines has had some impact on market share, resulting from price competition on certain routes, having direct effect on THAI’s revenue. As a result, THAI has planned a new pricing strategy to counter the effects of competition and closely collaborated with alliance members and code-share partners to increase passenger traffic. Currently, THAI focuses on gaining more premium class customers and at the same time retaining customers with mileage programs under Royal Orchid Plus rewards. E-Services such as e-Reservation, e-Ticketing, e-Payment and e-Check-In also contribute to enhancing efficiency in access and sales and are part of the Magic Service Ring introduced to increase

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service quality and passenger convenience. THAI has also rationalized flight frequencies, aircraft capacity and seat retrofitting to cope with increasing demand on highly competitive routes in order to maximize sales and revenue.

Risk Management Plan for Fiscal Year 2006 1. Risk Management Department will liaise closely with related functions such as Standards and Safety Assurance and Crisis Management to ensure consistency with and alignment with the overall risk management system. 2. Risk Management Department will ensure that all functions have implemented risk indicators for early warning. 3. Risk Management Department will support and encourage development of contingency and business recovery plans across the organization. 4. Risk Management Department will implement a Control Self-Assessment framework to monitor and assess the internal control system that each department head has established within their functions aligned with the State Audit Commission’s guidelines.

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Structure of Shareholders and Management

Ordinary Shares As of 30 September 2005, the Company has : Registered capital: 1,700,000,000 shares with a par value of 10 baht per share or a total of 17,000,000,000 baht Paid up capital*:

1,698,888,150 shares with a par value of 10 baht per share or a total of 16,988,881,500 baht

*Note : The above does not include the exercise of 1,600 warrant units by THAI employees under the Employee Securities Option Plan (ESOP). The exercise of the warrant units were registered with the Ministry of Commerce on 17 October 2005, increasing the registered paid up capital to 16,988,897,500 baht.

Shareholders THAI’s major shareholders and their respective shareholding as of the 4 January 2005 closing of shareholder register for dividend payment, with the Ministry of Finance the largest shareholder at 53.98%. Ranking

Shareholder

1.

Ministry of Finance

2.

Vayupak Fund 1 by Krung Thai Asset Management Public Company Limited

3.

Number of shares

Percentage

913,407,026

53.98

154,888,700

9.15

130,289,400

7.70

Vayupak Fund 1 by MFC Asset Management Public Company Limited

4.

Morgan Stanley and CO International Limited

40,695,050

2.41

5.

State Street Bank and Trust Company, for London

34,311,500

2.03

6.

Vayupak Fund 1 by MFC Asset Management Public Company Limited

24,599,300

1.45

7.

HSBC (Singapore) Nominees PTE Ltd.

19,542,658

1.15

8.

Thai NVDR Company Limited

18,428,130

1.09

9.

Citibank Nominees Singapore PTE Ltd-Aranda Investments (Mauritius) PTE Ltd.

15,900,500

0.94

State Street Bank and Trust Company

15,076,546

0.89

324,937,390

19.20

Total paid up capital

1,692,076,200

100.00

Thai Shareholders

1,393,216,905

82.34

298,859,295

17.66

10.

Other shareholders

Foreign Shareholders

Note: Investors are able to access to information on current shareholders via the Company’s Website prior to the Annual Shareholders’ Meeting.

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Thai Airways International Public Company Limited


The Ministry of Finance currently holds a 53.77% stake in THAI; thus, THAI remains a state enterprise and must comply with the following guidelines: 1. THAI must obtain approval from the Cabinet for investments of significant value. 2. The Office of the Auditor General is responsible for auditing the Company’s financial reports.

Future Share Issuance Obligation Under the resolution reached at the Shareholders’ Extraordinary Meeting 1/2002 held on 30 August 2002, THAI is obligated to issue 15 million shares that are to be sold or to support the exercise of warrant units that are to be offered to employees under the Employee Securities Option Plan (ESOP). Per share price and the exercise price are both set at 15 baht. Should all available shares be bought or exercised into common stock, THAI’s paid-up capital will increase to 17,000 million baht.

Dividend Policy THAI’s dividend policy is to pay annual dividend of not less than 25% of profit before consideration of gain/loss from foreign exchange, subject to future investment plans and other relevant factors.

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Organization Chart Corporate Management Structure comprising Board of Directors, Committees and Management as follows:

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Thai Airways International Public Company Limited


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Board of Directors As of 30 September 2005, members of the Board of Directors comprise: 1. Mr. Wanchai

Sarathulthat

Chairman

2. Mr. Suparut

Kawatkul

Vice Chairman

3. Mr. Chai-Anan

Samudavanija

Director

4. Mr. Chartsiri

Sophonpanich

Director

5. Mr. Tirachai

Vutithum

Director

6. Pol. Gen. Nopadol

Somboonsub

Director

7. Mr. Borwornsak

Uwanno

Director

8. Mr. Prasit

Damrongchai

Director

9. Mr. Pichai

Chunhavajira

Director

10. Mr. Vichit

Suraphongchai

Director

11. Mr. Vudhibhandhu

Vichairatana

Director

12. Mr. Srisook

Chandrangsu

Director

13. Mr. Somchainuk

Engtrakul

Director

14. Mr. Olarn

Chaipravat

Director

15. Mr. Kanok

Abhiradee

Director

- Mr. Tummasak Chutiwong Secretary Power of Authority on behalf of the Company The signatures of Chairman Wanchai Sarathulthat and another Director together with the Company seal or the signatures of 3 Directors with the Company seal are considered valid authorization for approval. Scope of Authority and Responsibilities of Board of Directors The Board of Directors must perform their duties in accordance with laws, objectives and regulations of the Company as well as resolutions of shareholders. They are empowered to appoint any person to manage the Company’s business under the supervision of the Board or entrust its authorization during any period, which the Board deems fit. The Board may cancel, withdraw or change the scope of authorization delegated to the person. The Board may authorize any person to sign on behalf of the Company as well as appoint any Committees. In 2005, there were 15 Board of Directors meetings.

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In addition, the Board of Directors has set up various committees to help study and screen details of specific matters. Committees include:

Audit Committee Members In accordance with the good corporate governance practices of the Ministry of Finance and the Stock Exchange of Thailand to increase shareholder and investor trust, the Board of Directors appointed an Audit Committee, whose members have no management responsibility within the Company. Members are: 1. Mr. Olarn

Chaipravat

Chaiman

2. Mr. Vichit

Suraphongchai

Member

3. Mr. Borwornsak

Uwanno

Member

4. Mr. Tirachai

Vutithum

Member

5. Mr. Vudhibhandhu

Vichairatana

Member

Mrs. Keseree Narongdej, Advisor Authority and Responsibilities of the Audit Committee The Audit Committee is responsible for supporting and acting on behalf of the Board of Directors in matters of reviewing financial reports for submission to shareholders and related parties, supervision of the Internal Audit Office for more effective internal controls and risk management and participation in joint meeting with the Management, the head of internal auditors and external auditors to achieve: 1. Credibility for quarterly and annual financial reports and disclosure of corporate data in the case of linkage or conflict of interest for reasons of transparency and accuracy. 2. Adequate risk management systems, internal controls and corporate supervision. 3. Comprehensive, adequate and suitable follow up procedures that are in accordance with relevant laws, regulations and policies. The Audit Committee schedules meetings regularly. In 2005, there were 11 meetings and reports to the Board of Directors.

Good Corporate Governance Committee In order to ensure good corporate governance according to the Ministry of Finance and the Stock Exchange of Thailand guidelines as well as the best international practices, the Board established a Good Corporate Governance Committee, a Secretary and Assistant Secretary currently comprising : 1. Mr. Borwornsak

Uwanno

Chairman

2. Mr. Suparut

Kawatkul

Member

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57


3. Mr. Chartsiri

Sophonpanich

Member

4. Mr. Kampree

Kaocharern

Member

5. Mr. Kobchai

Srivilas

Member

6. Mrs. Ngamnit

Sombutpibool

Member

7. Mr. Tummasak

Chutiwong

Member and Secretary

8. Mr. Pratuan

Suksom

Assistant Secretary

9. Flt.Lt. Kanok

Thongpurk

Assistant Secretary

Authority and Responsibilities of the Good Corporate Governance Committee The Committee is responsible for reviewing and advising the Board of Directors on the principles of good corporate governance which are in line with the Ministry of Finance and the Stock Exchange of Thailand guidelines as well as internationally accepted practices. The Good Corporate Governance Committee is authorized to coordinate with the Audit Committee, the Risk Management Committee and other committees within the Company as it sees fit. The Committee also has the authority to summon the Company personnel, hired staff and others to give an account or their opinions as well as confiscate documents or any items for consideration. In 2005, the Good Corporate Governance Committee met 6 times and submitted reports to the Board of Directors.

Independent Committee To ensure that the Company is well managed in accordance with the principles of good corporate governance of the Stock Exchange of Thailand, the criteria on good corporate governance which is part of THAI’s annual fiscal operational evaluation, and internationally accepted practices, the Board appointed an Independent Committee currently comprising: 1. Mr. Olarn

Chaipravat

Chairman

2. Mr. Chai-Anan

Samudavanija

Member

3. Mr. Borwornsak

Uwanno

Member

4. Mr. Tirachai

Vutithum

Member

5. Pol. Gen. Nopadol

Somboonsub

Member

6. Mr. Prasit

Damrongchai

Member

7. Mr. Vudhibhandhu

Vichairatana

Member

Authority and Responsibilities of the Independent Committee The Independent Committee comprises 7 independent Directors who have the authority to express opinions freely and/or report results within their area of responsibility to

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the Board. It also has the authority to summon staff and documents to clarify matters under consideration. In 2005, the Committee met on average once a month and reported to the Board of Directors.

Remuneration Committee To ensure that the Company is well managed according to the guidelines of the Ministry of Finance, the Stock Exchange of Thailand and internationally accepted practices, the Board appointed a Remuneration Committee and Secretary, currently comprising: 1. Mr. Olarn

Chaipravat

Chairman

2. Mr. Suparut

Kawatkul

Member

3. Mr. Chai-Anan

Samudavanija

Member

4. Pol. Gen. Nopadol

Somboonsub

Member

5. Senior Executive Vice President

Member

Corporate Planning and Information Technology Services Department 6. Executive Vice President

Member and Secretary

Corporate Secretariat Authority and Responsibilities of the Remuneration Committee The Remuneration Committee comprises 4 Directors and 2 Management representatives. It is responsible for determining remuneration for Board of Directors, members of Committees, Sub-Committees and Management as well as outside individuals who work for the Company. Remuneration must provide sufficient incentives to retain the quality executives that the Company needs yet maintain levels comparable to those within the industry. Moreover, committee members who receive added responsibilities and duties should be appropriately compensated, while members who are part of management should receive remuneration linked to Company performance and their own individual performance. In 2005, the Remuneration Committee met on average every 3 months and reported to the Board of Directors.

Risk Management Committee The Board appointed the following members and Secretary: 1. Mr. Vichit

Suraphongchai

Chairman

2. Mr. Borwornsak

Uwanno

Member

3. Flg. Off. Norahuch

Ployyai

Member

4. Mrs. Ngamnit

Sombutpibool

Member

5. Vice President, Risk Management Department

Secretary

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Authority and Responsibilities of the Risk Management Committee The Risk Management Committee, comprising 2 Directors and 3 Management representatives, is authorized to provide advice and counsel on risk management to all areas of the Company. In 2005, the Committee met on average once a month and reported to the Board of Directors.

Overall Corporate Restructuring Sub-Committee In order to achieve good corporate governance, according to regulations of the Ministry of Finance, the Stock Exchange of Thailand and internationally accepted practices, through the development of new ideas for managing human resources so as to secure quality, knowledgeable and capable people for positions in the Board of Directors and Executive Management, and to ensure fairness, transparency and accountability in all recruitment activities, and enabling overall restructuring of the organization, the Board of Directors appointed the Overall Corporate Restructuring Sub-Committee, and Secretary, currently comprising: 1. Mr. Wanchai

Sarathulthat

Chairman

2. Mr. Suparut

Kawatkul

Vice Chairman

3. Mr. Chai-Anan

Samudavanija

Member

4. Mr. Vichit

Suraphongchai

Member

5. Mr. Olarn

Chaipravat

Member

6. Mr. Borwornsak

Uwanno

Member

7. Mr. Prasit

Damrongchai

Member

8. Executive Vice President,

Secretary

Human Resources Development and Management Department Authority and Responsibilities of the Overall Corporate Restructuring Sub-Committee The Sub-Committee is responsible for 1. Reorganizing the overall corporate structure with effectiveness and efficiency. 2. Setting guidelines in recruiting and appointing Board Members and Executive Management of the Company. In 2005, the Sub-Committee convened an average of twice a month and reported to the Board of Directors.

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Thai Airways International Public Company Limited


Executive Management Committee In order to effectively manage the Company and skillfully navigate through repercussions from the fuel crisis, the Board of Directors appointed the following Executive Management Committee and Secretary: 1. Mr. Somchainuk

Engtrakul

Chairman

2. Mr. Suparut

Kawatkul

Member

3. Mr. Vichit

Suraphongchai

Member

4. Mr. Olarn

Chaipravat

Member

5. Mr. Borwornsak

Uwanno

Member

6. Mr. Prasit

Damrongchai

Member

7. Mr. Kanok

Abhiradee

Member

8. Mr. Tummasak

Chutiwong

Member and Secretary

Authority and Responsibilities of the Executive Management Committee 1. Supervise the Company’s Management to ensure operations follow corporate policy, corporate plans and the Board of Directors’ policy. 2. Screen business items to be submitted to the Board of Directors. 3. Provide guidelines and measures to upgrade quality and efficiency of Company operations. 4. Approve acquisitions within the Board of Directors’ assigned budgets and according to the Company regulations or the Board of Directors’ directives as follows: -

Regulations on Procurement

-

Regulations on Human Resource Management

-

Regulations on Finance Authority

-

Other current Company regulations within the Board’s scope of authority and those to be announced in future, within 500 million baht

5. Execute all matters as assigned by the Board of Directors. 6. Appoint sub-committees and working groups as appropriate. In 2005, the Committee met on average twice a month and submitted reports to the Board of Directors. The Board also appointed other Committees and Sub-Committees such as the Customer Services Quality Assurance Committee and the Sub-Committee monitoring THAI’s investment of Suvarnabhumi Airport etc. Note: All committees, sub-committees and working groups appointed by the Board of Directors will continue functioning up until the 2005 Annual Shareholders’ Meeting takes place.

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THAI Management Executives As of 30 September 2005, there were 14 Management Executive positions, comprising 1 position as President, 3 positions as Senior Executive Vice President, 9 positions as Executive Vice President and 1 position as Vice President Corporate Finance Department, as follows: 1. Mr. Kanok

Abhiradee

President

2. Mr. Tasnai

Sudasna

Senior Executive Vice President, Corporate Support Department

3. Mr. Kobchai

Srivilas

Senior Executive Vice President, Corporate Planning and Information Technology Services Department

4. Mr. Prajak

Jamrusmechoti

Senior Executive Vice President, Business Development Department

5. Mr. Kaweepan

Raungpaka

Executive Vice President, Human Resources Development and Management Department

6. ACM Narongsak

Sangapong

Executive Vice President, Special Project Department

7. Flg.Off. Chinawut Naressaenee

Executive Vice President, Customer Services Department

8. Flg.Off. Veerachai Sripa

Executive Vice President, Operations Department

9. Wg.Cdr. Supachai Limpisvasti

Managing Director, Technical Department (Executive Vice President Level)

10.Mr. Vasing

Kittikul

Executive Vice President, Commercial Department

11.Mr. Tummasak

Chutiwong

Executive Vice President, Corporate Secretariat Department

12.Flg.Off. Norahuch Ployyai

Executive Vice President, Standards and General Administration Department

13.Mrs. Ngamnit

Sombutpibool

Executive Vice President, Finance and Accounting Department

14.Mrs. Arunee

Phinyawat

Vice President, Corporate Finance Department

Note: “Executives” are as per definition of “Management” denoted by the Office of the Securities and Exchange Commission

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Thai Airways International Public Company Limited


Authority and Responsibility of the President The President has authority and responsibilities within the scope of the Company’s regulations as follows: 1. Authority and duties under regulation on General Administration B.E. 2540. The President is responsible for managing the Company to achieve corporate objectives or work functioning according to the Resolution of the Board of Directors. The President commands management executives and staff in accordance with the Company’s regulations or Board of Director directives. 2. Authority and duties under Procurement Regulations B.E. 2546. In accordance with corporate regulations, the President is charged with approving requisitions and entering into business activities with regard to procurement or disposal of materials and services. This includes purchasing, leasing, etc. Regulations clearly stipulate the President’s scope of authority in approving procurement and entering into various types of business activities within these limits: -

Contracts or business transactions for hiring Consultants: within 15 million baht

-

Contracts or business transactions to procure materials through special means: within 25 million baht

-

Contracts or business transactions to procure materials through standard means: within 50 million baht

-

Contracts or business activities aimed at procuring fuel, equipment, products for advertising and promotion, insurance for assets in general, food services, ready-to-consume drinks, services and merchandise at service outlets in the provinces or abroad, office rental and accommodations of a year-long or temporary duration, planned or ad hoc requisition of fuel within a year-long period: within 100 million baht

-

Sourcing fuel with better terms or benefits: within 200 million baht

-

Insurance for aircraft and/or passengers: within 500 million baht

-

Contract or business transaction for emergency procurement of fuel: no ceiling limit

If the amount of the business transaction exceeds the scope of the President’s authority, the matter is referred to the Board of Directors for approval. 3. Authority and duties under Regulation on Finance Authority B.E. 2540. The President has the authority to enter into agreements, proceed according to financial obligations and approve all financial business activities entrusted by the Board of Directors as well as all routine financial transactions under the Company’s regulations. Details and scope are : The President may not approve any business transaction outside those specified in the Company’s regulations stated above. According to the resolution of the Board of Directors’ meeting 14/2002 on 27 November 2002, transfer of authority from the Board of Directors to the President in routine business matters does not authorize the President to enter into business transactions that he or a person who may have a conflict of interest (i.e. (A) a Company Executive, (B) major shareholders of the Company, (C) a person with authority over

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the Company, (D) a blood relation, spouse or someone legally registered with (A), (B) or (C) such as a father, mother, spouse, offspring or close relative and (E) a legal entity in which (A), (B) or (C) holds shares, controls or has direct or indirect vested interests or a person designated by the Securities and Exchange Commission) has vested interests or may have any conflict of interest with the Company or its subsidiaries. However, at the Board of Directors’ meeting no. 10/2005 on 10 August 2005, the Board resolved that following the impact of the fuel crisis on its operations, the Company needed to urgently improve its management responsiveness to be more efficient and timely. The Board, therefore, decided to amend the Company’s regulations on General Administration B.E. 2540 to enable the operations of the company to run smoothly and effectively during this critical period. The revised Company’s regulations on General Administration (Issue No. 3) B.E. 2548, as approved by the Board, took effect on 10 August 2005. Moreover, in accordance with the Board authority under the Company’s regulations on General Administration (Issue No. 3) B.E. 2548, the Board approved the appointment of a Board member, Mr. Somchainuk Engtrakul, to perform the duties of THAI President, effective 11 August 2005, with full authority and responsibility of the President except for duties involving ceremonial and social functions which remain the duties of the President Mr. Kanok Abhiradee.

Appointment of the Board of Directors and Management Executives Board of Directors According to the Company’s regulations, the Board of Directors is composed of a minimum of 5 and a maximum of 15 members, the number being decided in the Shareholders’ Meeting from time to time. At least half of the Directors must be residents in Thailand. All Board members must possess appropriate qualifications and not be under prohibition by the law. Directors are appointed by a majority vote at a shareholder’s Meeting in accordance with the following rules and procedures: 1) Each shareholder shall have one vote for each share. 2) Shareholders must use all the votes they have to select one or several persons as Directors but they may not divide the votes in any way. 3) The persons receiving the most votes in descending order will be appointed as Directors according to the number of Directors to be elected. In the case that there is a tie for the last Director to be elected and this exceeds the total number decided upon, lots will be drawn to determine the last member.

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Thai Airways International Public Company Limited


In the case of a vacancy on the Board of Directors due to a cause other than end of term, the Board of Directors shall elect any person who has the qualifications and is not subject to prohibition under the law, to take the place of Director at the next Board Meeting, with a majority vote of not less than three fourths of the remaining Directors. If the remaining term of office of the Director being replaced is less than 2 months, the replacement Director shall hold the office only for the duration of the remainder of the term. At the Shareholders’ Meeting, shareholders may pass a resolution to remove any director before end of term, through a majority vote of not less than three fourths of shareholders present and eligible to vote, and total number of shares shall not be less than one-half of shares held by shareholders present at the meeting and entitled to vote. Other Committees Other Committees are the Independent Committee, the Audit Committee, the Risk Management Committee, the Executive Management Committee and the Good Governance Committee. These Committees are appointed by the Board of Directors. The members of these Committees must possess qualifications and not be under prohibition by the law as follows : 1. Ability to perform duties, freely express opinions and submit reports as assigned by the Board of Directors with regard for neither monetary rewards nor position and status, remaining outside the sphere of influence of individuals or groups of people and free from pressures preventing open expression of opinions. 2. Holding less than 5% of paid up capital of the Company, subsidiary companies, partner companies and any related companies. This includes shares owned by family and related members. 3. Not participating in the management of the Company, its subsidiaries, partner companies or related companies neither a major shareholder in the Company, employee, hired staff nor consultant receiving regular salary from the Company, its subsidiaries, partner companies, related companies, or major shareholders. 4. Having no vested interests nor gaining benefits, whether directly or indirectly, for financial or managerial aspects from the Company, its subsidiaries and partner companies or from major shareholders. Having no business interests as stated above for a period of 1 year prior to appointment as Independent Committee member, unless the Board, after careful consideration, agrees that these benefits have no bearing on the proper and independent execution of duties. 5. Neither involved nor related to Executives, according to the legal definition in the Regulations for Civil Service and Governance, or major shareholders. 6. Not appointed to represent or safeguard the interests of the Board of Directors, major shareholders or shareholders who are related to major shareholders. Related parties refers to people with relationships or connections to the Company that prohibit them from carrying out their duties smoothly and independently such as suppliers, customers, creditors, debtors and those with hidden business agendas. Annual Report 2005

65


Management Executives Regarding the appointment of the President, the top position in the Company’s management, the Board of Directors must appoint a Nominating Committee comprising the Permanent Secretary of the Ministry of Finance, the Secretary General of the National Economic and Social Development Board (NESDB), the Permanent Secretary of the Ministry of Transport, 1 representative from the State Enterprise Labour Relations Committee and 1 representative from the Board of Directors. This Committee draws up qualifications and screens candidates according to the Act of Standard Qualifications of the State Enterprise Directors and Staff B.E. 2518 (amended in B.E. 2543). The Nominating Committee will select persons with required qualifications and propose them to the Board of Directors for selection through a majority vote. As for the other management members, the Board of Directors appoints a Nominating Committee to select appropriate persons.

Remuneration of the Board of Directors The Board of Directors has stipulated remuneration to Directors as proposed by the Remuneration Committee as follows: Meeting Allowance for the Board of Directors - Each Director receives a stipend of 50,000 baht per month when attending meetings and 20,000 baht per month when absent. - If a Board Director is appointed to be a Committee, Sub-committee or Working Group member, he will receive additional remuneration as follows: -

For the Executive Management, Good Corporate Governance and Remuneration

Committees, the Director will receive an additional 10,000 baht per month of attendance -

For the Audit Committee, the Director will receive the same monthly

remuneration as other Committee members when attending or absent. Chairman and Vice Chairman receive the remuneration higher than other Directors at the rate of 25% and 12.5%, respectively, and all are responsible for paying their income tax. A Committee Secretary receives half of the remuneration of the Board Directors. Bonus: 0.5% of dividends Note: As a result of the fuel crisis that has severely affected the Company, the Board of Directors in its meeting 10/2005 on 10 August 2005, agreed to cut meeting remuneration for members of the Board, Committees, Sub-committees and Working Groups by 50%, starting 11 August 2005 until the fuel crisis abates and the Company performance stabilizes.

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Thai Airways International Public Company Limited


Remuneration of Board Directors and Management Executives Monetary Remuneration Remuneration for the Board of Directors for the fiscal year ending 30 September 2005: Units : Million Baht Number of Persons

Total Remuneration

Board Directors

21

29.50

Audit Committee members

5

2.86

Other Committee members

-

6.44

Note: 1 Board member also holds a Management position

Remuneration for Management Executives for the fiscal year ending 30 September 2005: Units : Million Baht

Management Executives

Number of Persons

Salary, Bonus and Other Benefits

14

50.32

Note: Management Executives include the Vice President of Corporate Finance Department.

Other Remunerations Ticket benefits: 1. The Director and one accompanying person are entitled to 15 return international tickets per year, 15 return domestic tickets per year, in the highest possible class of travel, as long as the Director is serving in the position. If the ticket allowance is fully utilized, the Director may purchase bookable tickets at a 75% discount from normal fare in the desired class of travel, with the exception of domestic travel. - The one named companion will have the same ticket privileges as the Director (and in cases where accompanying travel is not possible, will still have the ticket privilege). - Former Directors and one accompanying person will receive 12 return international tickets and 6 return domestic tickets per year as patrons with a 75% discount on the required class of travel. The President is authorized to approve these tickets (or he may entrust the Executive Vice President, Commercial Department). 2. Executive Officers, including spouse and children, receive bookable tickets without payment of fares. Parents receive discounts on tickets in the same manner as Company employees. 3. Executive Officers receive the same benefits as other employees according to the Employee Securities Option Plan (ESOP) as per the resolution at the Shareholders Extraordinary Meeting 1/2002 held on 30 August 2002.

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4. Executive Officers benefit from the Company’s provident funds and pension funds in the same manner as Company employees. The Provident Fund - The Company registered a Provident Fund, in which the Company as well as employees remit payments, on 26 June 1992.* The Company remits 9% of salary if the employee has worked less than 20 years and 10% of salary if he or she has worked over 20 years. The employee remits payment of no less than 2% of salary and no more than the Company’s remittance. The Pension Fund - The Company set up the Pension Fund for Employees by paying in 10% of the employee’s salary, which the Fund invests for interest. In the case where funds become lower than contracted, the Company will add in funds to fulfil obligations at the end of the accounting cycle. Staff under the Pension Fund must have worked in the Company for at least 3 years in order to have the right to receive pension funds upon resignation, retirement or death. Since June 1992, when the Company established its Provident Fund, employees are only allowed to join the Provident Fund so from that time onwards, the Pension Fund has not had new members. Provident funds given to Management Executives in 2005: Units : Million Baht

Management Executives

Number of Persons

Amount

14

3.02

Note: Management Executives included the Vice President of Corporate Finance Department.

* On that date, current employees were given the option of joining the Provident Fund or remaining in the Pension Fund.

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Thai Airways International Public Company Limited


Good Corporate Governance Committee Report

THAI understands the importance of upholding good corporate governance in its operations and management of the company, which is the basis for improving operational efficiency and effectiveness, enhancing competitive edge and securing the trust of shareholders, investors and all stakeholders. Integrating good corporate governance bears the signature of long-term success as it provides a solid foundation for THAI to continue providing competitive comprehensive air transport services to both domestic and international destinations. This entails the equitable treatment of passengers, shareholders and staff as well as supporting the country’s development. A Good Corporate Governance Committee was established to carry out the Good Corporate Governance Policy drafted by the Board of Directors on 28 October 2001. The Committee consists of Board Members and Senior Management whose responsibilities are to monitor and advise the Board on matters of good corporate governance to ensure that business is conducted in compliance with guidelines provided by the Ministry of Finance, the Stock Exchange of Thailand and is in accordance with internationally accepted practices. The Good Corporate Governance Committee is responsible for establishing an operational framework to encourage good corporate governance practices on an ongoing basis and in accordance with international standard. The Committee is charged with the responsibility to ensure that the code of conduct is clearly communicated to all levels of management and staff so that they understand the importance of good corporate governance leading to the coining of the slogan “Commitment to ethical standard in thought and in practice.” Three sub-committees were appointed to support in the areas related to ethics, good corporate governance and ensure that work procedures observe the principles of good corporate governance. Recommendations regarding improving good corporate governance rating and coordinating to achieve that objective are part of the sub-committees’ responsibilities. This was to benefit the Company in its annual review for fiscal year 2005.

Major activities undertaken by the Good Corporate Governance Committee in fiscal year 2004 include: Review of the code of conduct handbook of both Board members and staff while taking into consideration feedback from staff and that of other related parties. The Committee is currently reviewing all feedback in order to make amendments to the handbook. Invited specialists to speak to management and staff on the issue of good corporate governance and also a video tape about good corporate governance is shown before every training course. In addition Coaching Team will be trained and serve as role model within the Company. Improve working system in the Company to keep them in line with good corporate governance e.g. the recruitment, appointment and transfer of managerial staff. Support and encouraged members of the Board to attend a course on Directorship offered by the Institute of Directors Association (IOD). The Company received a rating of “Good” from participating in the Good Corporate Governance rating program organized by the Stock Exchange of Thailand in 2004. THAI is committed to continue using the principles of good corporate governance in its management of daily operations.

Borwornsak Uwanno Chairman of Good Corporate Governance Committee Annual Report 2005

69


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Thai Airways International Public Company Limited


Good Corporate Governance Compliance Report

The Company understands the importance of good corporate governance and diligently observes these guidelines. The Board of Directors established a Good Corporate Governance Committee and its various sub-committees, as well as an Corporate Secretariat Department, Investor Relations Department, and a Risk Management and other support units. The Board of Directors passed policies that outline principles for promoting a culture of Good Corporate Governance to enhance management effectiveness, efficiency and to form a solid base for future growth. In 2004, THAI took part in the premier Stock Exchange of Thailand (SET) and the Securities and Exchange Commission’s (SEC) good corporate governance rating, which formed part of the Company’s performance review that was agreed upon between the THAI and the State Enterprise Policy Committee of the Ministry of Finance. The rating process was undertaken by Thai Rating and Information Services Company Limited (TRIS) taking into consideration 3 years of performance (2002-2004) with a scope encompassing issues concerning shareholder rights, the role of the Board of Directors and that of management along with the level of information disclosure, interviews with senior management and staff of the Company along with credible publicly available information formed the basis of this evaluation. The result received was a rating of “Good” for Corporate Governance reflecting the Board of Directors management and every staff member’s commitment to uphold the principles of good governance, transparency in business operations, accountability and equitable treatment of stakeholders. This foundation will enable THAI to sustain growth and provide benefit and prosperity to the Thai nation. THAI’s measures to comply with all legal guidelines and that of the Securities and Exchange Commission, Stock Exchange of Thailand and good corporate governance principles are: 1. Policy of Good Corporate Governance THAI Airways International Public Company Limited is aware of the importance and is fully committed to the principles of good corporate governance reflected in the Board of Directors resolution on 28 October 2005 approving the following policies: Adherence to rightfulness Respond to customer and stakeholder needs Transparency of operations Responsibility to duty Operational responsibility Equitable treatment

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Vision Ethics THAI strives to engrain these principles into the minds of Board members, management and staff to serve as foundation to improve efficiency and effectiveness of the Company’s operations, equitable treatment of stakeholders, increase confidence, transparent and fair operations to ensure sustainable profitability, which serves as a tool for the Company to achieve its goal of increase shareholder value. The Company is committed to adhering to the principles and guidelines of good corporate governance of state enterprises per the Ministry of Finance’s guidelines including SET’s 15 principles and observing International Best Practices. THAI’s 7 guiding principles in regards to responsibility towards stakeholders, the environment, society and the nation : 1. Uphold shareholder rights and ensure equitable treatment 2. Ensure integrity of structure, role and duties of Independent Directors 3. Ensure sufficient information disclosure and transparency 4. Ensure sufficient internal control and risk management 5. Uphold the Company’s code of conduct 6. Pursue long-term creation of stakeholders value 7. Promote of best practices The Board of Directors appointed a Good Corporate Governance Committee, comprising members of Board and management and charged with the responsibility to review and advise the Board on good corporate governance practices. The Committee is also responsible for ensuring adherence to the guidelines of the Ministry of Finance, Stock Exchange of Thailand and internationally accepted practices. The Committee also has the responsibility of setting up a comprehensive review process and ensuring that all Board Members attend relevant courses at either the Thai Institute of Directors Association (IOD) or other institutions. At the Good Corporate Governance Committee Meeting 1/2005 held on 17 March 2005, it was agreed that there would be a review of the procedure to appoint Good Corporate Governance sub-committees. -

Code of Conduct and Good Corporate Governance Promotion Sub-Committee.

The Code of Conduct Sub-Committee was integrated with the Good Corporate Governance

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Thai Airways International Public Company Limited


Promotion Sub-Committee to form a single sub-committee, responsible for improving Company ethics, clarifying the concept of good corporate governance and promoting the observation of these guidelines to employees. This past year, the Code of Conduct and Good Corporate Governance Promotion Sub-Committee revised the Good Corporate Governance handbook with operating procedures for conducting business and providing a channel for staff feedback. Contents of the handbook were posted on THAI’s website for ease of staff access and the webboard was used to solicit staff feedback. The manual was a culmination of joint effort involving all units in preparing respective sections and the adherence to good corporate governance principles of. The Sub-Committee has organized a variety of activities to promote awareness concerning the importance of good corporate governance to members of the Board, management, staff and other related parties. These include publication of the quarterly magazine focused on good corporate governance. To promote awareness activities such as holding a slogan competition, “Promote Good Corporate Governance Weeks” at various departments within THAI, visiting other business entities to observe first hand good corporate governance in action, a PR video was prepared, announcements were made via the intranet and audio hotline and invited guest speakers to speak to staff. An example was the Management seminar on “How Good Corporate Governance adds value to the Company and to oneself” with special lecturer, Prof. Hiran Radeesri, Advisory Chairman, Corporate Governance Center the Stock Exchange of Thailand. Staff’s opinion were solicited regarding. One objective was to form coaching teams with a targeted ratio of 1 coach to 7 staff, and teams were given the responsibility of keeping staff informed about developments. -

The Good Corporate Governance in Working System Sub-Committee was responsible for

reviewing working system to ensure fair treatment of employees and ensure the adherence of these working system with Good Corporate Governance principles. Recruiting guidelines were revised, redrafted procedures for appointing and transferring of management level staff to reflect good corporate governance principles. There have been numerous feedbacks from staff via the website and the sub-committee is reviewing those feedbacks so that further changes can be incorporated. -

Sub-Committee to Improve Good Corporate Governance Rating is responsible for making

recommendations and coordinating with relevant parties with the aim of improving the Company’s Good Corporate Governance rating in fiscal year 2005. 2. Shareholders’ Rights THAI recognizes the importance of shareholders’ rights and the fair and equitable treatment of all stakeholders. These basic rights include the right to attend shareholders’ meetings and the right to allow a proxy vote and the right to express personal opinions and ask questions at shareholders’ meetings.

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THAI’s annual ordinary shareholders’ meeting is to be held within 4 months after the fiscal year-end. However, an extraordinary shareholders’ meeting will be called should there be an urgent issue that requires immediate consideration that would bear significant impact on the interest of shareholders or involve conditions, regulations or laws that require shareholders’ approval. Invitations along with the meeting agenda and the opinion of the Board of Directors are provided to shareholders. Sufficient information is provided to shareholders 14 days in advance of the actual meeting day to make informed decisions. The Company also reminds its shareholders to bring along important documents required to attend and vote at the meeting. Other items include proxy forms where shareholders can give their proxy votes to one of the three independent directors to vote on their behalf. The Company provides shareholders with three and a half hours to register to attend the annual shareholders’ meeting. Notification of the annual ordinary shareholders’ meeting is also placed in the Thai newspaper for 3 consecutive days and at least three days prior to the annual ordinary shareholders’ meeting. At the outset of the ordinary shareholders’ meeting, shareholders are told how vote are to be counted. During the meeting, all shareholders have an equal right to express their opinion and ask questions for clarifications within an appropriate time. Voting and counting of votes are conducted transparently and efficiently. Votes are counted on a one vote per share held basis and requires a three fourths majority votes to ratify each agenda. Record of the meeting is prepared in a written report, which includes all questions, clarifications and opinions expressed at the meeting. 3. Stakeholders’ Rights THAI’s main goal is to provide comprehensive air transport services encompassing domestic and international routes, focusing on safety, convenience and unsurpassed quality service to satisfy its customers and gain their trust. Effective and efficient management at par with international standards combined with satisfactory financial performance serves to maximize shareholders value. To optimize staff effectiveness and growth potential, the Company seeks to provide a stable, safe and friendly working environment so that everyone can feel proud to be part of the success story. THAI, in its role as the national carrier, supports the nation through its various charity and social contributions.

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Thai Airways International Public Company Limited


The Company has clear guidelines regarding procedures in observing the rights of stakeholders within (shareholders, members of Board and company employees) the Company and that of external entities (customers, trade partners, government entities and other related parties) while also encompassing guidelines on responsibilities to humanity, society and the environment. Such guidelines have been printed in the Company’s Code of Ethics, which have been distributed Companywide and the contents have also been posted on the Company’s website for staff reference and to observe and abide. THAI’s guidelines for each stakeholders’ rights include : Customers: As stated in the Company’s first objective of its corporate strategy, THAI is to be a Customer Focused Organization with plans to foster a Customer Centric Culture. A Customer Service Department was established headed by an Executive Vice President responsible for all aspects of customer service. A new Customer Services Quality Assurance Committee was established by the Board of Directors, charged with enhancing quality service, seeking improvement in efficiency and increasing customer satisfaction. A Customer Board comprising members of the Board, management, domestic and foreign passengers flying various classes with various backgrounds and professions to comment and suggest changes to be made for service improvement. Partners:

THAI observes a policy of equitable treatment of all its trade partners. A questionnaire was recently sent to survey satisfaction of the Company’s procurement services to determine ways to make procurement procedures simple and more transparent. THAI also implemented a New Procurement Management System to increase efficiency and to be at par with international practices. The Enterprise Resource Planning System (ERP), the SAP/R3 programs, are being used to manage procurement operations. Procurement and recruitment are also done electronically spanning a broad range of raw material via an electronic auction process, which has saved the Company over 250 million baht in fiscal year 2005.

Employees: THAI realizes the importance of its human resource, which is the single most important asset for the Company in contributing to THAI’s success story. THAI seeks to recruit and employ knowledgeable, capable and experienced staff. Ongoing personnel development programs are provided to supplement staff knowledge and capabilities with higher levels of skill. A key indicator that has been set to assess THAI’s commitment to developing staff skills is the number of days of training attendance. Salaries have been adjusted to be

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comparable to leading companies in Thailand and its peers in the aviation industry. All permanent staff are entitled to benefits as practiced in the international aviation industry. The Company also offers fringe benefits to staff, such as contribution to employee’s provident fund, support of the Thai Airways International Clubs and Thai Employees’ Savings and Credit Coops Ltd. THAI also provides benefits such as medical care and other fringe benefits to members of the staff’s immediate family. THAI offers professional development courses to help staff enhance their competencies to better complete tasks at hand and to improve service standards to provide greater customer satisfaction. A revision of the Human Resources Development Plan supports staff in learning new knowledge and skills e.g. accounting, special bachelor’s degree programs. Lecturers have also been brought into teach courses on modern management methods e.g. Balanced Scorecard. Society:

There should not be preferential treatment and uphold the country’s reputation. Natural resources should be conserved and to avoid actions that bear adverse impact to society. Activities supporting social development should be supported and promoted.

4. Shareholders’ Meeting For the 2004 General Shareholders’ Meeting held on 17 December 2004, the Company sent letters of invitation, proxy forms, meeting agenda and adequate information in accordance with SET and the Company’s own guidelines to all shareholders 14 days prior to the day of the meeting. The announcement for the General Shareholders’ Meeting was also placed in a Thai daily newspaper for 3 consecutive days and at least 3 days prior to 17 December 2004. Shareholders were given ample time (three and a half hours) to register and participate in the voting process at the meeting. In addition to the Chairman presiding over the meeting, 8 other Directors were also present. The attendees include the Board Chairman, Audit Committee Chairman, Good Corporate Governance Committee Chairman, Chairman of Independent Directors, Remuneration Committee Chairman, Strategic Supervision Committee Chairman and the President:

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Thai Airways International Public Company Limited


1. Mr. Thanong

Bidaya

Chairman

2. Mr. Srisook

Chandrangsu

Vice Chairman

3. Mr. Somchainuk

Engtrakul

Vice Chairman

4. Mr. Chai-Anan

Samudavanija

Director

5. Mr. Tirachai

Vutithum

Director

6. Mr. Borwornsak

Uwanno

Director

7. Mr. Vudhibhandhu

Vichairatana

Director

8. Mr. Olarn

Chaipravat

Director

9. Mr. Kanok

Abhiradee

Director and President

A number of important issues were submitted for consideration and approval at the meeting. Votes were tallied for each of the agenda submitted for approval. The Chairman opened the floor for shareholders to freely ask questions and express opinions and recommendations. Board members provided shareholders with appropriate information in regards to shareholder questions. A transcript of the meeting was prepared, which include the voting results along with questions and answers and opinions expressed by shareholders. The transcript was submitted to respective authorities within 14 days of the shareholders’ meeting. The transcript will be approved at the next General Shareholders’ Meeting. 5. Leadership and Vision The Board of Directors, comprising of knowledgeable, skillful and highly successful executives with diverse backgrounds, ensure the Company’s smooth operations. It is also part of the Board’s responsibility to oversee the development of the Company’s vision, strategic business direction and policies, the preparation of the Company’s annual budget. The Board is also responsible for ensuring the adherence by management to the approved strategic plans and budgets. The efficient and effective management of the organization while abiding by the rules and regulations of supervisory bodies and government agencies and shareholders’ resolutions are also part of the Board’s responsibilities. The Board also oversaw the establishment of an internal control system and implemented sound risk management policies, taking to consideration the Company and stakeholders’ interest by observing good corporate governance principles to enhance the Company’s overall value and increase shareholders’ confidence. 6. Conflict of Interest THAI upholds the principles of Good Corporate Governance with the aim of preventing conflicts of interest. The Board of Directors screens the items that may be related to the conflict of interest and insists that

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Committees, Management and staff have to strictly practice according to the SET regulations and the following Company announcements: Company Announcement 22/2004 regarding related party disclosures of information about Thai Airways International Public Company Limited according to SET regulations and procedures announced on 10 September 2004. Key point: Announcement requiring all related Managements as defined by the Securities and Exchange Commission (SEC), reveal information about those persons and related companies that may be areas of conflict. THAI compiled a name list of related people and companies and if a link exists, a report should be made to the SET and disclosed in the annual report (Form 56-2) and annual registration statements (Form 56-1). Company Announcement 01/2005 regarding pricing policies for certain items involving the Company, issued 19 January 2005. Key point: Announcement regarding linkage between Company and individuals according to Company Announcement 22/2004, it was recommended to use pricing of products and services as the determinant. First, THAI should use normal market pricing policies, as when working with non-related companies and then use policies for pricing with conditions, abnormal pricing or non-market pricing. Thus, the Company will be able to follow the regulations and procedures of the SET and correct accounting standards. In addition, THAI’s Secretariat Department compiles a list, for the Board and Management each month, of companies that are currently linked with Thai Airways International Public Company Limited so that the Board and Management are kept informed of new developments each month. 7. Business Ethics THAI believes in conducting business with transparency, honesty and morality. The Board, management and staff are jointly responsible to the Company and its stakeholders to act honestly, uphold applicable laws and comply with THAI’s own internal rules on the principles of good corporate governance. A booklet entitled “Thai Airways International Ethics” was produced and distributed to all of THAI’s staff. The booklet is constantly reviewed and updated by the Code of Conduct and Good Corporate Governance

78

Thai Airways International Public Company Limited


Promotion Sub-Committee. The content of the booklet was also posted on THAI’s website for staff reference. Staff feedback was also sought via the webboard. Activities were undertaken to promote ethics and good corporate governance within the organization. 8. Balance of Power for Non-Executive Directors Appointment of Board members is approved at the Ordinary Shareholders’ Meeting in accordance with THAI’s internal guidelines. The Board must consist of at least 5 and not more than 15 Directors. As of 30 September 2005, there were 15 Board members: 7 Non-Executive Directors 7 Independent Directors 1 Executive Director Of the 15 Board members, 94% are Non-Executive Directors and 47% are Independent Directors, which provides sufficient balance of power. Board members are bound by fiduciary duty to carry out their responsibilities in compliance with all legal guidelines and all rules and regulations as set forth by THAI’s charter along with all shareholder resultions. Board members must carry out their responsibilities with the greatest level of diligence, honestly and to protect the interests of the Company. Under the guidelines of Board members’ tenure, one third of the existing Directors whose tenures are the longest must retire at each Ordinary Shareholders’ Meeting. Members of the Board are subject to periodic evaluations. Results from such evaluations are reviewed so as to find means to improve effectiveness and efficiency in carrying out the duties of the Board. 9. Aggregation and Segregation of Positions The Chairman of the Board of Directors shall not hold any management position within the Company, shall not simultaneously hold the position of the Company’s President. The Chairman shall have no relation to management. There is in place guidelines providing clear cut separation of the roles of Board Members and that of management. 10. Directors and Management’s Remuneration There are clear guidelines for remuneration consideration for Board Members, members of sub-committees and persons who have been brought in to assist the Company. To attract and retain capable and knowledgeable Board Members, the remuneration package must be competitive and comparable to others in the industry. Compensation is also provided for Board Members who have been tasked with additional responsibilities. For Board Members who have management responsibilities, remuneration is linked to the Company’s overall financial performance and that of the individual person’s performance and contribution.

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The standard of remuneration complies with the guidelines set forth by the Ministry of Finance, the Stock Exchange of Thailand and being at par with international standards. Remuneration details for Directors and management has been provided in the Remuneration of Board of Directors and Executives section. 11. Board of Directors’ Meetings The Board of Directors meets on a regular schedule on the second Wednesday of each month while non-scheduled meeting are called as needed. There is clear set agendas provided along with details of each agenda that are submitted to members of the Board 7 days prior to the Board meeting. In fiscal year 2005, the Board met 15 times. Attendance of each Director is summarized under the Shareholding and Meetings of the Board of Directors and Audit Committee for fiscal year 2005 section. The Corporate Secretariat prepares the minutes of each Board meeting, which is submitted to each Board Member for review prior to ratification of the minutes at the next Board meeting. All agendas approved in Board meetings are filed and are ready for review by any interested party. 12. Committees The roles and responsibilities of each of the committees appointed by the Board of Directors has been outlined in the section of Board of Directors and Committees. 13. Internal Control and Internal Audit THAI recognizes the importance of having in place internal control systems and is committed to providing sufficient and appropriate control measures to protect against potential losses in the area of finance, operations, risk management and management. Implemented internal control systems comply with the 2001 State Audit Commission’s guidelines. Results of annual reviews on internal audit are submitted to the State Audit Commission, related authorities and the Audit Committee. An Internal Control Policy handbook was prepared to serve as reference for management and staff. To evaluate the effectiveness of THAI’s internal audit system, THAI set up an Internal Audit Department, responsible for auditing performance and evaluating internal controls. This unit reports regularly to the Audit Committee, which operates under SET’s guidelines on Good Corporate Governance and guidelines stipulated within the State

80

Thai Airways International Public Company Limited


Enterprise Audit handbook that the Ministry of Finance uses as reference dated December 2003. A summary of key internal audit guidelines include : -

The Audit Committee is responsible for assessing the adequacy of internal control systems by

regularly reviewing audits undertaken by the Internal Audit Department and reports of the independent auditor. The objective is to assess the appropriateness of the internal audit process and to ensure legal compliance, regulations, policies and other related guidelines. Recommendations and/or major flaws are reported to the Board of Directors for consideration and immediate action. -

The Internal Audit Department audits the Company’s operations by selecting operations in

accordance with its risk profile and ranking. Audit is performed on the internal controls within each function and evaluates management policies in relation to managing these risks. The Department also provides recommendations to management of the respective units on how to improve internal control process and Company guidelines on managing risk in the respective areas. This is to improve efficiency and effectiveness in the Company’s operations. The Internal Audit Department reports its findings to the Audit Committee regularly but a report is submitted to the Committee at least on a quarterly basis. Feedback is also provided to the respective supervisor in regards to observations or suggestions regarding internal control on key issues that could lead to damage of significance for the Company. The President will also be notified to consider taking immediate action to prevent potential damage. -

Aware of the importance of risk management and effective risk control, THAI established a Risk

Management Committee, responsible for ensuring that the policies and framework on risk management are effective and comprehensive in all areas of THAI’s operations. The Committee assesses whether general risk management procedures in place are appropriate and adequate. Recommendations are made to the Board of Directors about risk management policies, standard procedures, strategies and approach in assessing risks. The Risk Management Department promotes risk management throughout the organization by setting up procedures and internal systems to ensure that management control and risk management procedures are constantly in effect. The Department coordinates, supervises and reviews risk management activities within each business unit and provides advice and warnings to respective supervisors on risk management and potential risks. In addition to utilizing modern methods and tools, the Department tries to identify the risk driver or root cause of each risk type and provides in depth analysis for better understanding so as to be able to put in place the appropriate risk control measure. Reports are submitted to the Board of Directors for regular review.

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14. Statement from the Board of Directors The Board of Directors is responsible for providing shareholders with an annual summary report on THAI’s performance covering key issues. The Board is also responsible for establishing a comprehensive risk management system with appropriate measures of internal control. An Audit Committee was established and charged with the responsibility of ensuring integrity and transparency of financial disclosure, ensuring compliance with generally accepted accounting principles and establishing internal control measures. Statements from both the Board of Directors and that of the Audit Committee have been included in the annual report. 15. Investor Relations THAI, as a listed company on the Stock Exchange of Thailand, recognizes the importance of providing transparent, accurate and complete disclosure of information regarding its financial and operational performance to its stakeholders. THAI has an established Investor Relations Department that is headed by a Vice President reporting directly to the Executive Vice President of Finance and Accounting. The approach taken to communicate to stakeholders is both direct and indirect. Direct: As part of the communications regiment, THAI provides information updates to analysts, fund managers, shareholders, employees and other stakeholders. Direct activities undertaken include:

Activity

82

Frequency

International road shows

2-4/annum

Domestic and SET related events

4-8/annum

Analyst meetings

4/annum

One-on-one meetings/conference calls

100/annum

Phone calls/e-mails

2-3/day

General information update

3-6/week

Site visits

2-4/annum

Thai Airways International Public Company Limited


Indirect: THAI’s Investor Relations website www.thaiairways.com provides stakeholders and the general public the ability to access a broad range of data including basic company facts, the Company’s financial statements along with reports filed to the SET. 16. Office of the Secretariat THAI established a Secretariat that reports directly to the President. Mr. Tummasak Chutiwong, Executive Vice President is currently serving as Company Secretary, acting as Chief Administrator and Chief Compliance Officer and oversees the following departments: Legal Department Council of the Board Members and Management Meeting Department Compliance Department The Secretariat is charged with the following duties: Coordinate and manage the various activities of the Board of Directors to ensure compliance with laws and regulations Prepare the minutes of the Board and Shareholders’ meetings within a reasonable time Serve as consultant and secretary to the Board of Directors Serve as consultant and coordinator and serve as secretary for the various sub-committees that the Board has established Oversee good corporate governance issues Ensure legal compliance and compliance of the Company’s internal guidelines Coordinate between legal advisor and the financial auditor Serve as a communications center and provide information to members of the Board, committees and external parties Provide advice to the Board regarding legal issues and the Company rules and regulations and ensure compliance with such rules and regulations. Report changes or amendments of such rules or regulations to the Board of Directors 17. Policies with regard to Insider Information THAI adheres strictly to its guidelines regarding insider information. Announcement 24/2004 issued on 30 September 2004 prevents the use of insider information for personal gains. Directors, previous Directors who have left within 6 months and Management are prohibited from buying or selling Company shares 1 month prior to financial disclosure and 3 days post disclosure

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83


Provide members of the Board and management information regarding the definition of insider information, persons falling under the guidelines, recommended procedures and applicable penalties Set date for annual financial disclosure to be submitted to the SET Set timetable prohibiting the trading of THAI’s shares in according with Announcement 24/2004 preventing use of insider information for personal gains Prepare monthly updates on shareholdings by members of the Board and management regarding changes in shareholding. Inform about applicable penalties for not informing the SEC within the specified time period 18. Personal Development for Directors and Senior Executives The role of the Board of Directors registered under Good Corporate Governance is a topic of great concern for the authorities, institutional investors, shareholders and for THAI itself. Stakeholders have high expectations for members of the Board to play an active role in guiding the business towards sustainable growth, to be accountable for money management, protect shareholders’ rights and ensure that investors, whether large or small, obtain the maximum return on investment. Ongoing personal development for directors and executives is imperative in this era of ever changing environment, higher level of competition and greater expectation from shareholders. To this end, THAI’s directors and senior executives attended courses provided by the Institute of Directors (IOD). Special training sessions have also been arranged with IOD, to provide Directors Accreditation Program (DAP) and Directors Certification Program (DCP). The Company Secretary and related staff have attended the Corporate Secretary Development Program organized by the SET and the Association of Registered Companies. Courses related to middle management level Good Corporate Governance training organized by King Prajadhipok’s Institute was attended by members of the Secretariat to enhance skills in corporate management and the translation of high level strategies into action within units of their concern.

84

Thai Airways International Public Company Limited


Auditing Fees and Expenses The Company is audited by the Office of the Auditor General. For fiscal year 2005, fees and expenses totaled 5.50 million baht.

Other factors that may affect THAI’s financial performance As the level of return on investment is a function of risk, THAI’s share price is subject to a multitude of macro factors that are beyond its control. Operating to 72 destinations on 4 continents subjects the Company’s financial performance to global economic trends, international crises, hygiene related issues, currency fluctuations and unforeseen events such as the current high cost of fuel. It is highly recommended that investors take the time to thoroughly understand the airline industry and key factors that bear significant impact on THAI’s financial performance before making investment decisions.

Annual Report 2005

85


Board of Directors’ Shareholders Portfolio and Meeting for Fiscal Year 2005 Number of Shares

Board of Directors 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21.

Mr. Wanchai Mr. Thanong Mr. Suparut ACM Kongsak Mr. Tatchai Pol. Gen. Sant Mr. Viroj Mr. Suchai Mr. Chai-Anan Mr. Chartsiri Mr. Tirachai Pol. Gen. Nopadol Mr. Borwornsak Mr. Prasit Mr. Pichai Mr. Vichit Mr. Vudhibhandhu Mr. Srisook Mr. Somchainuk Mr. Olarn Mr. Kanok

Sarathulthat Bidaya Kawatkul Vantana Sumitra Sarutanond Nualkhair Charoenratanakul Samudavanija Sophonpanich Vutithum Somboonsub Uwanno Damrongchai Chunhavajira Suraphongchai Vichairatana Chandrangsu Engtrakul Chaipravat Abhiradee

Chairman Former Chairman Vice Chairman Former Vice Chairman Former Director Former Director Former Director Former Director Director Director Director Director Director Director Director Director Director Director Director Director Director

No. of Attendance/Total Meeting (times) Board of Directors Audit Committee 9/12 6/12 9/12 8/12 3/12 3/12 3/12 12/12 8/12 11/12 7/12 12/12 7/12 1/12 9/12 11/12 11/12 9/12 12/12 12/12

2,000 -

7/11 9/11 8/11 6/9 11/11 -

Remuneration of the Board of Directors for Fiscal Year 2005

Board of Directors

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21.

Mr. Wanchai Mr. Thanong Mr. Suparut ACM Kongsak Mr. Tatchai Pol. Gen. Sant Mr. Viroj Mr. Suchai Mr. Chai-Anan Mr. Chartsiri Mr. Tirachai Pol. Gen. Nopadol Mr. Borwornsak Mr. Prasit Mr. Pichai Mr. Vichit Mr. Vudhibhandhu Mr. Srisook Mr. Somchainuk Mr. Olarn Mr. Kanok

Sarathulthat Bidaya Kawatkul Vantana Sumitra Sarutanond Nualkhair Charoenratanakul Samudavanija Sophonpanich Vutithum Somboonsub Uwanno Damrongchai Chunhavagira Suraphongchai Vichairatana Chandrangsu Engtrakul Chaipravat Abhiradee

Chairman Former Chairman Vice Chairman Former Vice Chairman Former Director Former Director Former Director Former Director Director Director Director Director Director Director Director Director Director Director Director Director Director

Meeting Allowance of Board of Directors (Baht)

Meeting Allowance of Subsidiaries Committee (Baht)

512,500.00 375,000.00 478,125.00 458,750.00 150,000.00 150,000.00 190,000.00 575,000.00 415,000.00 545,000.00 325,000.00 575,000.00 325,000.00 25,000.00 505,000.00 545,000.00 553,750.00 497,500.00 575,000.00 575,000.00

110,000.00 137,500.00 190,000.00 20,000.00 10,000.00 360,000.00 75,000.00 925,000.00 5,000.00 1,072,500.00 220,000.00 986,250.00 510,000.00 68,750.00 101,250.00 1,003,750.00 -

Bonus of year 2004 1,701,442.02 1,361,153.61 1,361,153.61 1,361,153.61 1,361,153.61 1,053,796.38 1,361,153.61 1,361,153.61 1,361,153.61 1,361,153.61 1,361,153.61 1,531,297.81 1,531,297.81 1,361,153.61 1,361,153.61

Total Remuneration (Baht)

622,500.00 2,213,942.02 668,125.00 1,819,903.61 1,531,153.61 1,511,153.61 1,561,153.61 1,053,796.38 2,296,153.61 1,851,153.61 2,831,153.61 330,000.00 3,008,653.61 545,000.00 25,000.00 2,852,403.61 1,055,000.00 2,153,797.81 2,130,047.81 2,939,903.61 1,936,153.61

Note : Former Chairman, former Vice Chairman and former Directors are members of THAI’s Board of Directors who have resigned from their positions before 30th September 2005

86

Thai Airways International Public Company Limited


Related Parties Transactions

Details of Related Parties Transactions Name of persons

Relationship

who may have

Type of Transaction

Conditions /Pricing

Type of Transaction

as at September 30, 2004

Policy as at

as at September 30,2005

conflicts of interest (1) Ministry of Finance (MOF)

Thai-Amadeus Southeast Asia Company Limited (Subsidiary Company)

September 30, 2004 (2)

(3)

• The MOF is a 1. The MOF is the guarantor major shareholder of loans as follows : of THAI • Loans from local financial with 53.77% institutions equity interest - Initial amount : 3,000.00 million Baht - Outstanding balance : 750.00 million Baht - Interest expenses and accrued : 74.46 million Baht • Loans from foreign financial institutions - Initial amount : 12,073.31 million Baht - Outstanding balance : 927.42 million Baht - Interest expenses and accrued : 25.75 million Baht 2. Loans via the MOF - Initial amount : 77,323.35 million Baht - Outstanding balance : 28,893.01 million Baht - Interest expenses and accrued : 1,743.93 million Baht • THAI is a major shareholder with 55% equity interest • As at 30 September 2004, two of THAI’s executives, Mr. Prajak Jamrusmechoti and Mr. Tasnai Sudasna are chairman of board director and director of Thai-Amadeus Southeast Asia Company Limited respectively • As at 30 September 2005, two of THAI’s executives, Mr. Prajak Jamrusmechoti and Mr. Tasnai Sudasna are directors of Thai-Amadeus Southeast Asia Company Limited

THAI had leased to Thai-Amadeus Southeast Asia Company Limited office area, computer and office equipment. In addition, THAI provided company with accounting services and had seconded THAI personnel for its operations. THAI also sold ticket to the company - Aggregate amount : 72.00 million Baht - Outstanding balance of service expenses : 15.82 million Baht - Outstanding balance of ticket : 0.17 million Baht

(4)

The loans bear interest rate at 8.80% and are repayable in two installments per year over terms of 10 years

Conditions /Pricing Policy as at September 30,2005

(5) 1. The MOF is the guarantor of loans as follows : • Loans from local financial institutions - Initial amount : 3,000.00 million Baht - Outstanding balance : 450.00 million Baht - Interest expenses and accrued : 47.23 million Baht

(6)

Please see (4)

The loans bear interest rate at between 2.0-2.11% and are repayable in two installments per year over terms of 10-12 years

The loans bear interest rate at between 0.80-8.09% and are repayable at maturity over terms of 3-20 years for long term loans

2. Loans via the MOF - Initial amount : 46,213.91 million Baht - Outstanding balance : 19,476.59 million Baht - Interest expenses and accrued : 1,410.45 million Baht

The loans bear interest rate at between 1.137.07% and are repayable at maturity over terms of 5-20 years for long term loans

The company purchases goods and services from related parties on normal commercial terms

THAI had leased to Thai-Amadeus Southeast Asia Company Limited office area, computer and office equipment. In addition, THAI provided company with accounting services and had seconded THAI personnel for its operations. THAI also sold ticket to the company - Aggregate amount : 55.13 million Baht - Outstanding balance of service expenses : 15.44 million Baht - Outstanding balance of ticket : 0.14 million Baht

Please see (4)

Annual Report 2005

87


Name of persons

Relationship

Type of Transaction

who may have

as at September 30, 2004

conflicts of interest (1)

88

Conditions /Pricing

Type of Transaction

Policy as at

as at September 30,2005

September 30, 2004

Conditions /Pricing Policy as at September 30,2005

(2)

(3)

(4)

Donmuang International Airport Hotel Company Limited (Associated Company)

• THAI holds 40% equity interest in Donmuang International Airport Hotel Company Limited • As at 30 September 2004, four of THAI’s executives, Mr. Suthep Suebsantiwongse, Mr. Kaweepan Raungpaka, ACM Narongsak Sangapong and Wg. Cdr. Supachai Limpisvasti are chairman of board director and directors of Donmuang International Airport Hotel Company Limited respectively • As of 30 September 2005, THAI’s executives, ACM Narongsak Sangapong and Wg. Cdr. Supachai Limpisvasti are directors of Donmuang International Airport Hotel Company Limited

THAI obtained for its passengers accommodation services provided by Donmuang International Airport Hotel Company Limited - Aggregate amount : 50.96 million Baht - Outstanding balance: 0.11 million Baht

The company purchases goods and services from related parties on normal commercial terms

THAI obtained for its passengers accommodation services provided by Donmuang International Airport Hotel Company Limited - Aggregate amount : 58.61 million Baht

Please see (4)

Bangkok Aviation Fuel Services Public Company Limited (BAFS) (Associated Company)

• THAI holds 22.59% equity interest in BAFS • One of THAI’s directors, Mr. Srisook Chandrangsu, and three of its executives, ACM Narongsak Sangapong, Mr. Kobchai Srivilas, and Mr. Tasnai Sudasna are directors of BAFS

1. THAI used aircraft fuel services provided by BAFS - Aggregate amount : 256.79 million Baht - Outstanding balance : 22.54 million Baht 2. THAI sold ticket to BAFS - Aggregate amount : 0.05 million Baht

The company purchases goods and services from related parties on normal commercial terms

1. THAI used aircraft fuel services provided by BAFS - Aggregate amount : 270.63 million Baht - Outstanding balance : 21.11 million Baht 2. THAI sold ticket to BAFS - Aggregate amount : 0.02 million Baht - Outstanding balance : 0.01 million Baht

Please see (4)

Thai Airways International Public Company Limited

(5)

(6)


Name of persons

Relationship

who may have

Type of Transaction as at September 30, 2004

conflicts of interest

Conditions /Pricing

Type of Transaction

Policy as at

as at September 30,2005

September 30, 2004

(1)

(2)

(3)

(4)

Royal Orchid Hotel (Thailand) Public Company Limited (Associated Company)

• THAI holds 24% equity interest in Royal Orchid Hotel (Thailand) Public Company Limited • One of THAI’s directors, Mr. Srisook Chandrangsu, and three of its executives, Mr. Kanok Abhiradee, Mr. Tasnai Sudasna and Mr. Kaweepan Raungpaka, are directors of Royal Orchid Hotel (Thailand) Public Company Limited

1. THAI obtained for its passengers accommodation services provided by Royal Orchid Hotel (Thailand) Public Company Limited - Aggregate amount : 19.63 million Baht - Outstanding balance : 0.06 million Baht

The company purchases goods and services from related parties on normal commercial terms

• THAI holds 30% equity interest in Phuket Air Catering Company Limited • As at 30 September 2004, One of THAI’s directors, Mr. Srisook Chandrangsu and three of its executives, Mr. Kanok Abhiradee, Mr. Prajak Jamrusmechoti and Mr. Kaweepan Raungpaka are directors of Phuket Air Catering Company Limited • As at 30 September 2005, Three of THAI’s executives, Mr. Kanok Abhiradee, Mr. Prajak Jamrusmechoti and Mr. Kaweepan Raungpaka are directors of Phuket Air Catering Company Limited

THAI purchased food from, and used the catering services of Phuket Air Catering Company Limited - Aggregate amount : 27.66 million Baht - Outstanding balance : 4.82 million Baht

Phuket Air Catering Company Limited (Associated Company)

Conditions /Pricing Policy as at September 30,2005

(5) 1. THAI obtained for its passengers accommodation services provided by Royal Orchid Hotel (Thailand) Public Company Limited - Aggregate amount : 18.69 million Baht

(6) Please see (4)

2. THAI sold ticket to Royal Orchid Hotel (Thailand) Public Company Limited - Aggregate amount : 0.26 million Baht

The company purchases goods and services from related parties on normal commercial terms

1. THAI purchased food from, and used the catering services of Phuket Air Catering Company Limited - Aggregate amount : 12.99 million Baht - Outstanding balance : 2.05 million Baht 2. THAI sold food and catering services to Phuket Air Catering Company Limited - Aggregate amount : 5.23 million Baht - Outstanding balance : 0.53 million Baht

Please see (4)

Annual Report 2005

89


Name of persons

Relationship

Type of Transaction

who may have

as at September 30, 2004

conflicts of interest (1)

Type of Transaction

Policy as at

as at September 30,2005

September 30, 2004 (2)

(3)

(4)

Conditions /Pricing Policy as at September 30,2005

(5)

(6)

Fuel Pipeline Transportation Limited (Joint Venture Company)

• THAI holds 8.35% equity interest in Fuel Pipeline Transportation Limited • As at 30 September 2004, three of THAI’s executives, Mr. Kobchai Srivilas, Mr. Tasnai Sudasna and Mr. Kaweepan Raungpaka are directors of Fuel Pipeline Transportation Limited • As at 30 September 2005, two of THAI’s executives, Mr. Kobchai Srivilas and Mr. Tasnai Sudasna are directors of Fuel Pipeline Transportation Limited

THAI purchased fuel transportation services from Fuel Pipeline Transportation Limited - Aggregate amount : 48.13 million Baht - Outstanding balance : 4.97 million Baht

The company purchases goods and services from related parties on normal commercial terms

THAI purchased fuel transportation services from Fuel Pipeline Transportation Limited - Aggregate amount : 55.66 million Baht - Outstanding balance : 4.21 million Baht

Please see (4)

Aeronautical Radio of Thailand Limited (AEROTHAI) (Joint Venture Company)

• THAI holds 2.90% equity interest in AEROTHAI • The MOF, a major shareholder of THAI, is a major shareholder of AEROTHAI • One of THAI’s executives, Flg. Off. Veerachai Sripa, is a director of AEROTHAI

1. THAI purchased aeronautical navigation from AEROTHAI - Aggregate amount : 927.38 million Baht

The company purchases goods and services from related parties on normal commercial terms

1. THAI purchased aeronautical navigation and leased equipment from AEROTHAI - Aggregate amount : 890.93 million Baht - Outstanding balance : 0.03 million Baht 2. THAI sold ticket to AEROTHAI - Aggregate amount : 0.34 million Baht - Outstanding balance : 0.07 million Baht

Please see (4)

Suvarnabhumi Airport Hotel Company Limited (Associated Company)

90

Conditions /Pricing

• THAI holds 30% equity interest in Suvarnabhumi Airport Hotel Company Limited • Three of THAI’s executives, Mr. Kaweepan Raungpaka, ACM Narongsak Sangapong and Flg. Off. Norahuch Ployyai are directors of Suvarnabhumi Airport Hotel Company Limited

2. THAI sold ticket to AEROTHAI - Aggregate amount : 0.65 million Baht - Outstanding balance : 0.11 million Baht Non-Operate

Thai Airways International Public Company Limited

-

-

-


Name of persons

Relationship

who may have

Type of Transaction as at September 30, 2004

conflicts of interest (1)

Conditions /Pricing

Type of Transaction

Policy as at

as at September 30,2005

September 30, 2004

Conditions /Pricing Policy as at September 30,2005

(2)

(3)

(4)

(5)

(6)

Sky Asia Company Limited (Associated Company)

• THAI holds 39% equity interest in Sky Asia Company Limited • As at 30 September 2004, three of THAI’s executives, Mr. Kaweepan Raungpaka, Wg. Cdr. Supachai Limpisvasti, Flg. Off. Veerachai Sripa are directors of Sky Asia Company Limited • As at 30 September 2005, one of THAI’s directors, Mr. Vichit Suraphongchai and two of THAI’s executives Flg. Off. Veerachai Sripa, and Wg. Cdr. Supachai Limpisvasti, are directors of Sky Asia Company Limited

THAI has been leasing out aircrafts and aviation operation services to Sky Asia Company Limited - Aggregate amount : 79.92 million Baht - Outstanding balance : 76.76 million Baht

The company purchases goods and services from related parties on normal commercial terms

THAI has been leasing out aircrafts and aviation operation services to Sky Asia Company Limited - Aggregate amount : 1,405.26 million Baht - Outstanding balance : 152.49 million Baht

Please see (4)

PTT Public Company Limited (Related Company)

• The MOF, a major 1. THAI purchased fuel for its shareholder of aircraft from PTT Public THAI, is a major Company Limited shareholder of - Aggregate amount : PTT Public 3,219.82 million Baht Company Limited - Outstanding balance : • As at 30 September 358.69 million Baht 2004, two of 2. THAI sold ticket to THAI’s directors, PTT Public Company Mr. Olarn Limited Chaipravat - Aggregate amount : and Pol.Gen. Sant 0.16 million Baht Sarutanond are directors of PTT Public Company Limited • As at 30 September 2005, three of THAI’s directors, Mr. Olarn Chaipravat and Mr. Suparut Kawatkul are independent directors and Mr. Pichai Chunhavajira is the executive of PTT Public Company Limited

The company purchases goods and services from related parties on normal commercial terms

THAI purchased fuel for its aircraft from PTT Public Company Limited - Aggregate amount : 5,086.27 million Baht - Outstanding balance : 534.10 million Baht

Please see (4)

Annual Report 2005

91


Name of persons

Relationship

who may have

Type of Transaction as at September 30, 2004

conflicts of interest (1)

92

Conditions /Pricing

Type of Transaction

Policy as at

as at September 30,2005

September 30, 2004 (2)

(3)

(4)

Conditions /Pricing Policy as at September 30,2005

(5)

(6)

Airport Authority of Thailand Public Company Limited (AOT) (Related Company)

• The MOF, a major 1. THAI leased land and shareholder of building at Bangkok THAI, is a major International Airport and shareholder other airports in of AOT Thailand from AOT • As at 30 September - Aggregate amount : 2004, two of 1,760.42 million Baht THAI’s directors, - Outstanding balance : Mr. Srisook 1.12 million Baht Chandrangsu and 2. THAI sold ticket to AOT ACM Kongsak - Aggregate amount : Vantana are 0.46 million Baht Chairman and - Outstanding balance : Vice Chairman 0.04 million Baht and one of THAI’s executives, Mr. Suthep Suebsantiwongse is a director of AOT • As at 30 September 2005, three of THAI’s directors, Mr. Srisook Chandrangsu, ACM Kongsak Vantana and Mr. Vudhibhandhu Vichairatana are Chairman, Vice Chairman and director of AOT respectively

The company purchases goods and services from related parties on normal commercial terms

1. THAI leased land and building at Bangkok International Airport and other airports in Thailand from AOT - Aggregate amount : 2,041.73 million Baht - Outstanding balance : 1.03 million Baht 2. THAI sold ticket to AOT - Aggregate amount : 0.35 million Baht - Outstanding balance : 0.05 million Baht

Please see (4)

Bangchak Petroleum Public Company Limited (Related Company)

• The MOF, a major THAI purchased fuel from shareholder of Bangchak Petroleum Public THAI, is a major Company Limited shareholder of - Aggregate amount : Bangchak 4,825.36 million Baht Petroleum Public - Outstanding balance : Company Limited 609.75 million Baht • As at 30 September 2004, one of THAI’s directors, Mr. Chai-Anan Samudavanija, is Vice Chairman of Bangchak Petroleum Public Company Limited • As at 30 September 2005, two of THAI’s directors, Mr. Chai-Anan Samudavanija, and Mr. Pichai Chunhavajira are independent directors of Bangchak Petroleum Public Company Limited

The company purchases goods and services from related parties on normal commercial terms

THAI purchased fuel from Bangchak Petroleum Public Company Limited - Aggregate amount : 6,543.94 million Baht - Outstanding balance : 559.01 million Baht

Please see (4)

Thai Airways International Public Company Limited


Name of persons

Relationship

who may have

Type of Transaction as at September 30, 2004

conflicts of interest

Conditions /Pricing

Type of Transaction

Policy as at

as at September 30,2005

September 30, 2004

(1)

(2)

Dhipaya Insurance Public Company Limited (Dhipaya) (Related Company)

• As at 30 September 2004, one of THAI’s directors, Mr. Somchainuk Engtrakul is a Chairman of Dhipaya • As at 30 September 2005, three of THAI’s directors, Mr. Somchainuk Engtrakul, Mr. Pichai Chunhavajira and Mr. Prasit Damrongchai are Chairman, Vice Chairman and director of Dhipaya respectively

(3) THAI purchased Dhipaya property insurance and employee risk benefit insurance policies with the aggregate amount of 37.07 million Baht

Policy as at September 30,2005

(4) The company purchases goods and services from related parties on normal commercial terms

Conditions /Pricing

(5) THAI purchased Dhipaya property insurance and employee risk benefit insurance policies - Aggregate amount : 23.03 million Baht - Outstanding balance : 0.48 million Baht

(6) Please see (4)

Necessity and reasonableness of related parties transactions Having scrutinized items on related parties transactions during fiscal year 2005, ending September 30, 2005, the Audit Committee has the opinion that the aforementioned items were transacted in accordance with the Company’s regular business practice and in a reasonable manner. The setting of prices, terms and conditions was done in the same manner as those offered to non-related parties. There were no transfer benefits between the Company, subsidiaries, joint ventures, associated company and shareholders. As for loan guaranteed by Ministry of Finance and loans via Ministry of Finance, in which the Ministry of Finance are major shareholders of Thai Airways International Public Company Limited, the Company has enjoyed loans at better interest rates and conditions, compared to loans from other financial institutions.

Approval procedures for related parties transactions The related parties transactions were done as per the Company’s regular business procedures and were approved strictly in accordance with the Government and State Enterprise procedures. No director or executive with conflict of interest in the matter has been involved in the approval.

Policies on future related parties transactions The Audit Committee and the Company will together oversee the future related parties transactions to ensure that they will be handled properly with a fair return rate and approved in accordance with appropriate related processes and procedures. Items and values of related parties transactions with connected persons will be disclosed under the announcement and regulations by the Office of the Securities and Exchange Commission, and the Stock Exchange of Thailand.

Annual Report 2005

93


Management’s Discussion and Analysis for Fiscal Year Ending September 30, 2005 for Thai Airways International Public Company Limited and Its Subsidiary

1. Operating Results For the fiscal year 2005, starting October 2004 and ending September 2005, THAI and its subsidiary recorded a net profit of THB 6,777 million or THB 4.00 per share, which was a decrease from fiscal year 2004’s profit of THB 10,077 million or THB 6.14 per share. A major cause for the decline in the Company’s profitability was a result of the continuing high fuel cost. The effect of the decrease in tourism to Thailand resulted from the unrest in southern Thailand, the terrorism in other countries and the concern of bird flu epidemic. In fiscal year 2005, THAI launched its new Bangkok - New York route beginning May 1, 2005 and rationalized flights and destinations to suit passengers’ demand. Rates for fuel surcharge collected from passengers were increased to compensate the higher fuel price. As a result, revenues from the sale of goods and the rendering of services for fiscal year 2005 increased by THB 9,885 million to THB 162,488 million, or an increase of 6.5%. Selling and administrative expense increased by THB 19,559 million to THB 151,664 million, or an increase of 14.8% from the previous year, resulting from the increase in fuel price and, a one time charge against personnel expense for a Mutual Separation Plan to down-size the organization and reduce personnel expense, along with an adjustment of the Company’s salary structure. The resulting profits from the sale of goods and the rendering of services decreased by THB 9,674 million to THB 10,824 million, or 47.2% decline from last year. The gain of THB 1,470 million in foreign currency exchange was mostly due to a stronger Thai baht at year-end 2005, which reduced the Company’s outstanding foreign currency borrowings in baht terms. As compared to the previous year, the Company lost THB 2,179 million from currency exchange. The resulting performance was THB 14,235 million in profit before interest and income tax was, a THB 4,970 million decrease from the previous year or a 25.9% decline. Profit before income tax was THB 9,906 million, a decrease of THB 4,378 million or a 30.6% decline from the same period last year. The operating result for fiscal year 2005 can be summarized as follows : Units: Million Baht

2005

% Change

Revenue from the sale of goods and the rendering of service

162,488

+6.5%

10,824

-47.2%

Gain on foreign exchange

1,470

+167.5%

Profit before tax

9,906

-30.6%

Net profit

6,777

-32.7%

4.00

-2.14

Profit from the sale of goods and the rendering of services

Earnings per share (Baht)

94

Thai Airways International Public Company Limited


Production and Traffic Production capacity for fiscal year 2005 rose by 1.1% and traffic volume increased by 1.3% from last year resulting from route expansion and development. Key statistics: 2005

% Change

Production

(MATK)

9,791

+1.1%

Traffic

(MRTK)

6,565

+1.3%

(%)

67.1

Passenger Production

(MASK)

69,843

+0.0%

Passenger Traffic

(MRPK)

49,931

-1.4%

(%)

71.5

-1.0

Freight Production

(MADTK)

3,492

+2.7%

Freight Traffic

(MRFTK)

1,986

+8.0%

(%)

56.9

Load Factor

Cabin Factor

Freight Load Factor

+0.2

+2.8

The number of passengers carried totalled 18.13 million passengers, a 7.2% decrease from last year. The reduction in the number of passengers was mostly a result of the Tsunami that deterred tourists from travelling especially in JAN-MAR’05. Operating flight hours clocked was 304,535 which was similar to that of last year. There was also a slight pick-up in aircraft utilization from 10.2 hours per day to 10.4 hours per day. Revenue In fiscal year 2005, total revenue reached THB 164,921 million, which was a THB 11,027 million increase over the previous year or a 7.2% increase. Units: Million Baht

2005

% Change

129,234

+5.5 %

24,419

+9.7 %

1,079

+8.6 %

154,732

+6.2 %

7,756

+12.5 %

162,488

+6.5 %

2,433

+88.5 %

164,921

+7.2 %

Revenue from Transportation Activities - Passenger and Excess Baggage - Freight - Mail Total Revenues from Transportation Activities Revenue from Other Activities Total Revenues from the Sale of Goods and the Rendering of Services Other Income Total Revenue

Revenues from the sale of goods and the rendering of services for fiscal year 2005 rose by THB 9,885 million or a 6.5% rise from the previous year to THB 162,488 million. Details are: Annual Report 2005

95


Revenue from transportation activities saw a THB 9,021 million or 6.2% increase to THB 154,732 million from the previous year and the proportion of contribution is: - Passenger and excess baggage revenue was THB 129,234 million representing 79.5% of total revenues from the sale of goods and the rendering of services or an increase of THB 6,768 million (including the increase in passenger fuel surcharge of THB 5,217 million) or a 5.5% increase over the previous year. - Freight revenue was THB 24,419 million, which constituted 15.0% of total revenues from the sale of goods and the rendering of services or an increase of THB 2,168 million (including the increase in cargo fuel surcharge of THB 1,536 million) or a 9.7% increase from last year. - Mail revenue was THB 1,079 million, increased by THB 85 million or 8.6% over last year. Details of yield excluding insurance and fuel surcharge in fiscal year 2005 are as follows: 2005

% Change

System-wide

(Baht/RTK)

21.75

+0.6%

Passenger

(Baht/RPK)

2.41

+3.0%

Freight

(Baht/RFTK)

10.45

-4.9%

Revenue from other activities was THB 7,756 million, an increase of THB 864 million or 12.5% over last year. - Revenue from business units - Technical Services, Cargo Services, Ground Support Equipment Services, Ground Customer Services, and Catering totalled THB 6,667 million, an increase of THB 475 million or 7.7% from last year. - Revenue from Thai-Amadeus Southeast Asia Company Limited, a 55% subsidiary, contributed THB 403 million, which was a decrease of THB 12 million or a 2.9% reduction from last year. - Revenue from other activities totaled THB 686 million, an increase of THB 402 million or 141.5% from last year, coming mainly from the lease of aircraft and providing services to Nok Air. Other Income was THB 2,433 million, an increase of THB 1,142 million or 88.5% over last year. This comprised of THB 362 million in interest income or an increase of THB 26 million or 7.7% from the previous year. Other income totaled THB 2,071 million, which is higher than last year by THB 1,116 million derived mainly from current investment and revenue recognition from passenger tax which have not been billed to the Company.

96

Thai Airways International Public Company Limited


Expenses The Company recorded a total expense of THB 150,814 million, an increase over the previous fiscal year of THB 15,967 million or 11.8%. Details are as follows : Units: Million Baht

2005

% Change

Personnel

28,853

+8.6 %

Fuel and oil

46,101

+50.1 %

Cost of inventories and supplies

9,739

+7.8 %

Lease of aircraft and spare parts

5,652

-9.5 %

Flight operation

36,744

-1.3 %

Depreciation

13,155

+10.2 %

Marketing

3,825

+8.4 %

Insurance

1,902

+19.0 %

40

+17.6%

5,653

+7.9 %

151,664

+14.8 %

Other expenses

(850)

-131.0 %

Total expenses

150,814

+11.8 %

Operating expenses :

Remuneration to board of directors Other operating expenses Total operating expenses

Total operating expenses amounted to THB 151,664 million, an increase over last year by THB 19,559 million or 14.8%. Items of material impact include: - Personnel expense totaled THB 28,853 million, which was an increase of THB 2,297 million or 8.6% over last year resulting from a salary base adjustment, a one time charge for a Mutual Separation Plan and an annual inflationary adjustment. - Fuel cost was THB 46,101 million, which accounts for 30.4% of total operating expense and reflects an increase of THB 15,383 million or 50.1% from last year due to a 49.8% increase in average fuel price and an increase in fuel consumption. - Inventory and supplies expense totaled THB 9,739 million, which was an increase of THB 704 million or 7.8% over last year resulting from product improvement and on board services to enhance customer satisfaction. - Lease of aircraft and spare parts expense was THB 5,652 million, a decrease of THB 596 million or 9.5% was the result of exercising the rights to purchase 6 operating leased aircraft in November and December 2004.

Annual Report 2005

97


- Flight operations such as flight perdiem and accommodation of cockpit and cabin crews, navigation fees, airport fees, handling fees, maintenance and overhaul aircraft and engines, and reservation expenses totaled THB 36,744 million, which was a decrease of THB 473 million or 1.3% from last year. - Depreciation was THB 13,155 million, an increase of THB 1,223 million or 10.2% from exercising the option to purchase 6 leased aircraft and acquiring 4 new aircraft 2 Airbus A340-500s and 2 Airbus A340-600s aircraft. - Marketing expense was THB 3,825 million, an increase of THB 298 million or 8.4 % resulting from increased advertising and public relations to promote new routes and to stimulate sales during the period of low season and downturn in tourism resulting from the Tsunami disaster. - Insurance expense was THB 1,902 million, an increase of THB 304 million or 19.0% from the previous year due to an increase in insurance premium to third parties. Other expense comprise mostly of gain on foreign exchange for fiscal year 2005 was THB 1,470 million compared to a loss of THB 2,179 million from last year. Due to the stronger baht, foreign currency loans denominated in USD, JPY and EUR decreased in baht value. Share of net profit from associated companies was THB 127 million, a decrease of THB 31 million or 19.6% from last year because Sky Asia Company Ltd. incurred an operating loss. Interest expense totaled THB 4,329 million, a decrease from last year of THB 592 million or 12.0%, coming from the decrease in interest rates.

2. Financial Position Assets At the end of fiscal year September 30, 2005, the Company’s total assets was THB 231,638 million, which was increase of THB 38,428 million or 19.9% from the end of fiscal year September 30, 2004. The current and non-current assets accounted for 19.1% and 80.9% of total assets, respectively consisting of : September 30, 2005 MTHB

% of

September 30, 2004 MTHB

total assets Current assets Property, plant and equipment-net Other non-current assets

% of total assets

44,148

19.1

51,991

26.9

180,983

78.1

134,041

69.4

6,507

2.8

7,178

3.7

Current assets decreased by THB 7,843 million or 15.1% mainly due to a decrease of THB 10,959 million or 52.5% in cash and cash equivalents deriving from the sale of fixed assets, whereas other current assets increased by THB 2,173 million or 18.9% due to an increase in tax refund amount of THB 1,830 million. 98

Thai Airways International Public Company Limited


Property, plant and equipment-net increased by THB 46,942 million or 35.0%. The increase was mainly due to exercising of options to purchase 6 leased aircraft - 5 Airbus A300-600s and 1 Airbus A330-300, the acquisition of 2 new Airbus A340-500s and 2 Airbus A340-600s as well as investments in assets at Suvarnabhumi Airport. Liabilities The Company has total liabilities as at the end of fiscal year 2005 totalling THB 172,426 million, which was an increase of THB 33,539 million or 24.1% from the end of fiscal year 2004 which consist of : September 30, 2005 MTHB

% of

September 30, 2004 MTHB

total liabilities Current liabilities (excluding current portion of long-term loans) Long-term debts Staff pension fund

% of total liabilities

47,018

27.3

42,875

30.9

120,865

70.1

91,791

66.1

4,543

2.6

4,221

3.0

Long-term debts as at September 30, 2005 include the current portion of long-term loans totalling THB 13,755 million is an increase of THB 29,074 million or 31.7% from September 30, 2004. The increase is a result of an issuance of THB 30,000 million in debenture and an increase in financial lease of THB 10,768 million. But long-term loans and promissory notes decreased by THB 11,694 million. Shareholders’ Equity As of fiscal year end 2005, Shareholders’ Equity totaled THB 59,212 million, which is an increase of THB 4,888 million or 9.0% from the end of fiscal year 2004 resulting from an increase in net operating profit net of dividend payment. As for unrealized gain on available-for-sale securities decreased because the Company sold all of its remaining shares held in France Telecom. Capital structure as of September 30, 2005 consisted of total liabilities amount of THB 172,426 million and constituted 74.4% and shareholders’ equity of THB 59,212 million or 25.6% of total liabilities and shareholder equity. Debt to equity ratio was 2.91x compared to 2.56x from fiscal year 2004. Liquidity Cash and cash equivalents as at the end of fiscal year 2005 totaled THB 9,930 million, which was a decrease of THB 10,959 million from fiscal year end 2004. Net cash from and used in other activities are as follows : - Net cash from operating activities amounted to THB 19,541 million. - Net cash used in investing activities amounted to THB 43,245 million mostly to purchase aircraft and investment in assets at Suvarnabhumi Airport. - Net cash from financing activities amounted to THB 12,774 million. This includes cash received from the issuance of a THB 30,000 million debenture, acquisition of THB 1,211 million in long-term loans and the issuance of ESOP worth THB 108 million. The Company repaid loans in the aggregate amount of THB 16,820 million and paid dividends for fiscal year 2004 in the amount of THB 1,725 million.

Annual Report 2005

99


Business Operation Guideline and Corporate Strategy

THAI is working towards the goal of becoming the first choice airline. The focus is on service excellence with Thai charm, strengthening its competitiveness and preparedness in handling all types of crises, in particular, rising fuel cost and intensified competition from both traditional and low cost airlines operating in Thailand. THAI entered a joint venture to establish “Nok Air”, to compete directly with low cost airlines. THAI positions itself as a “Leisure Destination Airline” with full network, full services, medium pricing and high value. The main strategies for growth are focus on customer service, product development, management and service while observing strict cost control measures. Operational guidelines and strategies are as follows: Develop world class products and services to satisfy customers, differentiate services and add value through touches of Thai culture, improve services in the flight cabin and at airports as well as all customer contact points. THAI is gradually upgrading its Royal First and Royal Silk Class seats and entertainment systems in 26 of its existing aircraft and is scheduled to be completed by mid 2006. THAI also developed a new Corporate Identity which better reflects modernity and the Brand. The New Look is currently being implemented throughout the customer touch points and will be fully implemented at the Suvarnabhumi Airport. Route rationalization by reducing flights that are not profitable or unlikely to yield profit within both the short and long-term, expanding routes to high yield destinations, concentrating on intercontinental flights to existing and future destinations, increasing capacity and frequency of regional flights, cooperating with other domestic airlines in Thailand to provide services to secondary and minor destinations and cooperate with international alliance partners using Bangkok as a strong aviation hub for THAI. Improve cost management including production, purchasing, operations, distribution, logistics, funding and others. Employ modern knowledge and management systems, invest in technology and know-how and foster closer relations with customers, staff and all business partners to keep costs at a competitive level. Simplify and shorten business processes and reduce binding clauses to enhance flexibility in responding to environmental changes and focusing more on results. The Company is also implementing a Balanced Scorecard system to efficiently manage strategy implementation, which will better enable THAI to achieve its vision and objectives.

100

Thai Airways International Public Company Limited


Five-Year Review

Number of Aircraft

2005

2004

2003

2002

2001

84

83

81

81

81

304,535

304,325

279,654

281,286

271,564

Flight Hours

(Block Hours)

Available Ton-Kilometres

(Million)

9,791

9,686

8,870

8,752

8,490

Revenue Ton-Kilometres

(Million)

6,565

6,478

5,850

6,027

5,818

Load Factor

(%)

67.1

66.9

66.0

68.9

68.5

Number of Passengers

(000)

18,133

19,540

17,048

18,315

18,619

Available Seat-Kilometres

(Million)

69,843

69,830

63,826

63,198

60,459

Revenue Passenger-Kilometres

(Million)

49,931

50,633

44,396

46,571

45,167

Cabin Factor

(%)

71.5

72.5

69.6

73.7

74.7

Available Dead Load Ton-Kilometres

(Million)

3,492

3,401

3,125

3,064

3,049

Revenue Freight Ton-Kilometres

(Million)

1,986

1,839

1,780

1,771

1,695

Freight Load Factor

(%)

56.9

54.1

57.0

57.8

55.6

Number of Personnel

(People)

25,876

25,884

25,531

25,516

25,963

Profitability (Result before Tax)

(Million Baht)

9,906

14,284

17,431

14,416

1,229

Note : (1) All data shown for fiscal year from October 1 - September 30, or as at September 30. (2) The Company’s results for fiscal year 1999/2000-2001/02 were adjusted with the accounting policies changed in fiscal year 2003.

Definition of Aviation Terms Available Ton-Kilometres (ATK)

Cabin Factor

Capacity offered for sale expressed as aircraft payload

Revenue passengers-kilometres expressed as percentage of

multiplied by flown kilometres.

available seat-kilometres.

Revenue Ton-Kilometres (RTK)

Available Dead Load Ton-Kilometres (ADTK)

Capacity sold expressed as tons of load carried multiplied by

Capacity offered of aircraft payload after deduction of weight

flown kilometres.

of the load of passengers multiplied by flown kilometres.

Load Factor

Revenue Freight Ton-Kilometres (RFTK)

Revenue ton-kilometres expressed as percentage of

Freight capacity sold expressed as tons of freight carried

available ton-kilometres.

multiplied by flown kilometres.

Available Seat-Kilometres (ASK)

Freight Load Factor

Passenger capacity offered for sale expressed as number of

Revenue freight-kilometres expressed as percentage of

seats multiplied by flown kilometres.

available dead load ton-kilometres.

Revenue Passenger-Kilometres (RPK)

Aircraft Payload

Passenger capacity sold expressed as number of passengers

Weight of the load of passengers, cargo and other load

multiplied by flown kilometres.

carried on a fully loaded aircraft using the average density of cargo. Annual Report 2005

101


Board of Directors’ Duties on Financial Disclosure

√“¬ß“π¢Õߧ≥–°√√¡°“√µ√«® Õ∫

The Board of Directors of Thai Airways International Public Company Limited is responsible for both the integrity of the Company’s own financial statements and also the consolidated financial statements along with financial details disclosed within the annual report. The financial statements have been prepared in accordance with generally accepted accounting standards and are complete in the disclosure of relevant information. The Board has established and maintained an internal risk management system with security measures that are appropriate to reduce the Company’s potential exposure to operational risk or abnormalities that may have significant impact on the Company. As such, the Board of Directors is satisfied with the existing internal control process, which provides a high level of comfort in the integrity of both the Company’s own financial statements and the consolidated financial statements for fiscal year ending 30 September 2005.

Wanchai Sarathulthat

Somchainuk Engtrakul

Chairman of the Board of Directors

Member of the Board of Directors Acting as President

102

Thai Airways International Public Company Limited


Audit Committee’s Report

To Shareholders, The Audit Committee of Thai Airways International Public Company Limited is comprised of five directors, qualified in Finance, Management, Law and Human Resource Management. Four of the directors are independent and none are executive directors, employees or advisors of the company. The Audit Committee members are: 1. Mr. Olarn Chaipravat Independent Director as Chairman 2. Mr. Borwornsak Uwanno Independent Director as Member 3. Mr. Tirachai Vutithum Independent Director as Member 4. Mr. Vudhibhandhu Vichairatana Independent Director as Member 5. Mr. Vichit Suraphongchai Director as Member In 2005, the Audit Committee convened eleven times, twice were joint meetings with the executive management team. The head of Internal Audit, and the external auditors and the Management were invited to attend as appropriate. The major tasks undertaken by the Audit Committee were as follows: The Audit Committee reviewed both THAI’s and the consolidated quarterly and annual financial statements for fiscal year 2005, ensuring integrity and sufficient disclosure of information and that the financial statements were prepared in accordance with generally accepted accounting standards. The Audit Committee also reviewed THAI’s financial reporting process for its creditability. A review of the disclosure of related party transactions was also made to ensure compliance with generally accepted business practices and the regulations of the Stock Exchange of Thailand. The Audit Committee not only ensured the adherence of internal audit work to the approved plan but also followed up on actions taken to rectify key concerns that have been raised to the Committee to ensure adequate internal control and mitigate THAI’s overall risk. The Audit Committee also monitored the results of internal audit as assigned by the Audit Committee and the Board of Directors. A long-term internal audit plan spanning 2006 - 2008 was reviewed and approved by the Committee in addition to annual audit plans. The risk based plans were prepared in relation to corporate risks, which can be modified with changing risk profile. Upon receiving regular updates of internal audit results, the Committee views THAI’s internal audit process to be sufficient, appropriate and effective. With risk at the heart of management’s concern, the Audit Committee undertook reviews of THAI’s risk management policies and reports, the establishment of internal control system and control self-assessments as per the State Audit Commission’s internal audit guidelines of B.E. 2544 as well as internal audit results to provide a reasonable assurance that THAI’s internal control system has been effective and adequate. The Audit Committee reviewed compliance with the Securities and Exchange Acts, the Stock Exchange of Thailand’s regulations and laws related to the Company’s business based on the internal audit reports and the report of the Company Secretary, who is responsible for compliance monitoring. The Audit Committee also considered and explained any comments made by the Securities and Exchange Commission (SEC) regarding the Company’s operations. Upon review, the Audit Committee deems THAI’s operations to be in accordance with relevant rules and regulations. The Audit Committee performed a self-assessment in relation to the Audit Committee Charter as assigned by the Board of Directors based on current best practice from the Stock Exchange of Thailand and the Audit Committee Guidelines for State Enterprises as detailed by the Ministry of Finance. The Committee was very satisfied with performance for fiscal year 2005. The Audit Committee reviewed the re-appointment and remuneration of the Auditor General as the Company’s external auditors for fiscal year 2006, advising the Board of Directors to propose for approval at the Annual General Meeting of Shareholders.

Mr. Olarn Chaipravat Chairman November 17, 2005 Annual Report 2005

103


No. 0015/2124

Office of the Auditor General of Thailand Rama VI Road, Phayathai, Bangkok 10400, Thailand Tel : 662-618-5807 Fax : 662-618-5802 E-mail : audit7@oag.go.th

This letter is given to confirm that the English version of the Auditor’s Report together with the consolidated financial statements for the years ended September 30, 2005 and 2004 of Thai Airways International Public Company Limited and its subsidiary and the Company’s financial statements for the years ended September 30, 2005 and 2004 of Thai Airways International Public Company Limited was translated by Thai Airways International Public Company Limited. The Office of the Auditor General of Thailand reviewed the aforementioned translated Auditor’s Report and financial statements and found that there were no substantial differences of content from those of the Thai version.

Given on November 29, 2005

(Pensri Soranaraks) Deputy Auditor General for Auditor General

104

Thai Airways International Public Company Limited


Auditor’s Report

TO THE SHAREHOLDERS OF THAI AIRWAYS INTERNATIONAL PUBLIC COMPANY LIMITED The Office of the Auditor General of Thailand has audited the accompanying consolidated balance sheets of Thai Airways International Public Company Limited and its subsidiary and the balance sheets of Thai Airways International Public Company Limited as at September 30, 2005 and 2004, and the related consolidated and the Company’s statements of income, changes in shareholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management as to their correctness and completeness of the presentation. The responsibility of the Office of the Auditor General of Thailand is to express an opinion on these financial statements based on the audits. The Office of the Auditor General of Thailand conducted the audits in accordance with generally accepted auditing standards. Those standards require that the Office of the Auditor General of Thailand plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. The Office of the Auditor General of Thailand believes that the audits provide a reasonable basis for the opinion. In the opinion of the Office of the Auditor General of Thailand, the consolidated and the Company’s financial statements referred to above present fairly, in all material respects, the financial position of Thai Airways International Public Company Limited and its subsidiary and of Thai Airways International Public Company Limited as at September 30, 2005 and 2004, and the results of operations, the changes in shareholders’ equity, and the cash flows for the years then ended in conformity with generally accepted accounting principles. Without qualifying opinion, the Office of the Auditor General of Thailand draws attention to the personnel expense, presented under the operating expenses, which is higher than last year due to the salary structure adjustment and a Mutual Separation Plan. The Company remains the payment for its staff income tax therefore the amount of these expenses are getting higher every year regarding to the staff’s income.

(Signed) Pensri Soranaraks (Pensri Soranaraks) Deputy Auditor General

(Signed) Peeraporn Methawikul (Peeraporn Methawikul) Director of Audit Office

Office of the Auditor General November 17, 2005

Annual Report 2005

105


Thai Airways International Public Company Limited and its Subsidiary As at September 30, 2005 and 2004

Balance Sheets

Unit : Baht CONSOLIDATED Notes

2005

THE COMPANY 2004

2005

(restated)

2004

(restated)

ASSETS Current Assets Cash and cash equivalents

3.1

9,930,000,904

20,888,514,393

9,589,521,953

20,618,162,278

Current investment-available-for-sale securities

3.2

-

323,455,999

-

323,455,999

Trade account receivables-net

3.3

15,468,179,546

15,022,384,683

15,423,035,075

14,974,435,217

Inventories and supplies-net

3.4

5,095,985,028

4,275,361,532

5,095,985,028

4,275,361,532

Other current assets

3.5

13,654,129,844

11,481,590,397

13,630,866,502

11,458,266,007

44,148,295,322

51,991,307,004

43,739,408,558

51,649,681,033

Total Current Assets Non-Current Assets Investments by the equity method

3.6.1

1,402,118,521

1,322,469,860

1,667,828,330

1,572,280,901

Other long-term investments

3.6.2

190,010,922

152,137,142

88,376,676

51,859,311

180,983,297,860

134,041,264,755

180,940,866,547

133,955,930,373

Property, Plant and Equipment-Net

3.8

Others

3.9

4,914,554,188

5,703,353,702

4,905,245,319

5,696,219,610

Total Non-Current Assets

187,489,981,491

141,219,225,459

187,602,316,872

141,276,290,195

Total Assets

231,638,276,813

193,210,532,463

231,341,725,430

192,925,971,228

The accompanying notes are an integral part of these financial statements.

106

Thai Airways International Public Company Limited


Unit : Baht CONSOLIDATED Notes

2005

THE COMPANY 2004

2005

(restated) LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities Trade account payables Current portion of long-term loans 3.10 Long-term loans Liabilities under financial leases 3.11 Promissory notes 3.12 Provision for contingent liabilities 3.13 Other current liabilities Accrued expenses Accrued dividends 3.14 Accrued income taxes Unearned transportation revenues Others 3.15 Total Current Liabilities Non-Current Liabilities Long-term debts 3.16 Debentures Long-term loans 3.10 Liabilities under financial leases 3.11 Promissory notes 3.12 Staff pension fund 3.23 Total Non-Current Liabilities Total Liabilities Shareholders’ Equity 3.17 Share capital Authorized 1,700.00 million ordinary shares par value of Baht 10 each Issued and paid-up 1,685.00 million ordinary shares par value of Baht 10 each 1,698.89 million ordinary shares par value of Baht 10 each Premium on share capital Proceeds from ESOP offering Unrealised gain (losses) on current investmentavailable-for-sale securities Retained earnings Appropriated 3.18 Legal reserve Unappropriated Total Company Shareholders’ Equity Minority interests Total Shareholders’ Equity Total Liabilities and Shareholders’ Equity

2004

(restated)

7,993,856,108

6,713,530,109

7,981,405,194

6,707,993,751

6,117,198,306 6,587,594,104 1,050,000,000 141,049,404

10,283,623,939 5,248,494,457 1,050,000,000 -

6,117,198,306 6,587,594,104 1,050,000,000 141,049,404

10,283,623,939 5,248,494,457 1,050,000,000 -

16,273,774,116 52,475,790 28,411,385 17,953,215,464 4,575,376,372 60,772,951,049

14,833,485,877 50,607,384 41,326,321 16,507,265,038 4,728,893,165 59,457,226,290

16,256,628,995 52,475,759 17,953,215,464 4,554,231,374 60,693,798,600

14,823,537,623 50,607,384 16,507,265,038 4,705,533,715 59,377,055,907

40,000,000,000 13,809,393,871 49,101,100,338 4,200,000,000 4,542,741,371 111,653,235,580 172,426,186,629

10,000,000,000 20,286,806,946 39,671,971,402 5,250,000,000 4,220,771,393 79,429,549,741 138,886,776,031

40,000,000,000 13,809,393,871 49,101,100,338 4,200,000,000 4,542,741,371 111,653,235,580 172,347,034,180

10,000,000,000 20,286,806,946 39,671,971,402 5,250,000,000 4,220,771,393 79,429,549,741 138,806,605,648

17,000,000,000

17,000,000,000

17,000,000,000

17,000,000,000

-

16,850,000,000

-

16,850,000,000

16,988,881,500 15,646,761,354 12,000

15,580,550,482 96,732,486

16,988,881,500 15,646,761,354 12,000

15,580,550,482 96,732,486

(477,805)

317,143,675

(477,805)

317,143,675

1,700,000,000 24,659,514,201 58,994,691,250 217,398,934 59,212,090,184 231,638,276,813

1,700,000,000 19,574,938,937 54,119,365,580 204,390,852 54,323,756,432 193,210,532,463

1,700,000,000 24,659,514,201 58,994,691,250 58,994,691,250 231,341,725,430

1,700,000,000 19,574,938,937 54,119,365,580 54,119,365,580 192,925,971,228

The accompanying notes are an integral part of these financial statements.

(Signed) Somchainuk Engtrakul (Somchainuk Engtrakul) Board of Director Acting as President

(Signed) Ngamnit Sombutpibool (Ngamnit Sombutpibool) Executive Vice President Finance and Accounting Annual Report 2005

107


Thai Airways International Public Company Limited and its Subsidiary For the years ended September 30, 2005 and 2004

Statements of Income

Unit : Baht CONSOLIDATED 2005

THE COMPANY 2004

2005

(restated)

2004

(restated)

Revenues from the Sale of Goods and the Rendering of Services Passenger and excess baggage Freight

129,233,824,463

122,466,283,429

129,233,824,463

122,466,283,429

24,418,612,793

22,250,415,100

24,418,612,793

22,250,415,100

Mail

1,079,260,295

994,103,330

1,079,260,295

994,103,330

Other activities

7,756,523,548

6,892,219,453

7,353,803,316

6,476,834,319

162,488,221,099

152,603,021,312

162,085,500,867

152,187,636,178

Personnel

28,853,278,446

26,555,656,336

28,828,349,652

26,534,523,626

Fuel and oil

46,100,717,282

30,717,794,695

46,100,717,282

30,717,794,695

Inventories and supplies

9,739,263,524

9,034,886,533

9,739,263,524

9,034,886,533

Lease of aircraft and spare parts

5,651,787,307

6,248,569,166

5,651,787,307

6,248,569,166

Flight operations

36,743,707,218

37,217,219,668

36,743,707,218

37,217,219,668

Depreciation

13,155,407,827

11,932,029,629

13,091,686,866

11,901,098,399

Marketing

3,825,361,177

3,527,019,934

3,783,193,305

3,484,039,536

Insurance

1,901,656,351

1,598,186,087

1,901,656,351

1,598,186,087

40,315,359

34,210,751

38,795,734

32,891,917

5,652,453,608

5,239,720,974

5,553,960,026

5,143,232,883

151,663,948,099

132,105,293,773

151,433,117,265

131,912,442,510

10,824,273,000

20,497,727,539

10,652,383,602

20,275,193,668

Total Revenues from the Sale of Goods and the Rendering of Services Operating expenses :

Remuneration to board of directors Other operating expenses Total operating expenses Profit from the Sale of Goods and the Rendering of Services

The accompanying notes are an integral part of these financial statements.

108

Thai Airways International Public Company Limited


Unit : Baht CONSOLIDATED Notes

2005

THE COMPANY 2004

2005

2004

(restated)

(restated)

Profits from the Sale of Goods and the Rendering of Services

10,824,273,000

20,497,727,539

10,652,383,602

20,275,193,668

Other Income Interest income Others

3.19

Total Other Income

362,678,738

336,472,250

361,888,601

335,761,123

2,070,679,905

954,907,098

2,067,564,496

951,725,974

2,433,358,643

1,291,379,348

2,429,453,097

1,287,487,097

(1,469,706,067)

2,178,950,117

(1,469,706,067)

2,178,950,117

44,010,429

38,942,629

44,010,429

38,942,629

575,349,314

523,902,486

567,890,377

516,771,593

(850,346,324)

2,741,795,232

(857,805,261)

2,734,664,339

14,107,977,967

19,047,311,655

13,939,641,960

18,828,016,426

435,392

59,311,669

84,731,595

127,495,109

157,603,199

127,495,109

157,603,199

127,495,109

158,038,591

186,806,778

242,334,794

14,235,473,076

19,205,350,246

14,126,448,738

19,070,351,220

4,328,903,629

4,921,293,480

4,328,903,629

4,921,293,480

Other Expenses Losses (gains) on foreign currency exchange Yields from pension fund Others

3.20

Total Other Expenses Profits from Operations Share of Profits from Investments by the Equity Method Share of net profit from subsidiary companies

-

Share of net profit from associated companies Total Share of Profits from Investments by the Equity Method

3.6.1

Profits before Interest and Income Tax Expenses Interest expenses Income tax expenses Profits after Tax Net profit of minority interest Net profits Basic earnings per share

3,081,390,254

4,138,248,695

3,020,893,645

4,072,219,290

6,825,179,193

10,145,808,071

6,776,651,464

10,076,838,450

48,527,729

68,969,621

6,776,651,464

10,076,838,450

6,776,651,464

10,076,838,450

4.00

6.14

4.00

6.14

-

-

3.21

Net profits Diluted earnings per share

3.21

Net profits

4.00

-

4.00

-

The accompanying notes are an integral part of these financial statements.

(Signed) Somchainuk Engtrakul (Somchainuk Engtrakul)

(Signed) Ngamnit Sombutpibool (Ngamnit Sombutpibool)

Board of Director

Executive Vice President

Acting as President

Finance and Accounting

Annual Report 2005

109


Statements of Changes in Shareholders’ Equity

Thai Airways International Public Company Limited and its Subsidiary For the years ended September 30, 2005 and 2004

Unit : Baht CONSOLIDATED Share Capital

Premium

issued and

on share

from

(losses)

fully paid

capital

ESOP

available-for-

offering

sale securities

-

454,324,822

1,700,000,000

17,994,101,711

156,317,516

39,054,744,049

Notes

Proceeds Unrealised gain

Legal

Retained

Minority

Reserve

Earnings

Interest

Total

Unappropriated

Balance as at October 1, 2003 (before adjustment)

14,000,000,000

4,750,000,000

- Cumulative effect of change in accounting policy for D-check

-

-

-

-

-

(1,652,114,839)

-

(1,652,114,839)

-

-

-

-

-

(580,558,742)

-

(580,558,742)

-

-

-

-

-

(650,827,643)

-

(650,827,643)

-

454,324,822

1,700,000,000

- Cumulative effect of change in accounting policy for depreciation of aircraft seats - Cumulative effect of change in accounting policy for depreciation of in-flight equipment Balance as at October 1, 2003 (after adjustment)

14,000,000,000

4,750,000,000

15,110,600,487

156,317,516

36,171,242,825

- Unrealised gain on current investment - available-for-sale securities Add Net Profits Less Dividends paid

-

-

-

(137,181,147)

-

-

28,715

(137,152,432)

-

-

-

-

-

10,076,838,450

68,969,621

10,145,808,071

(5,612,500,000)

(20,925,000)

-

Add Issued share capital

2,850,000,000

10,830,550,482

-

-

-

-

-

-

-

-

13,680,550,482

(5,633,425,000)

96,732,486

-

-

-

-

96,732,486

317,143,675

1,700,000,000

96,732,486

317,143,675

1,700,000,000

19,574,938,937

-

Add Proceeds from ESOP offering

-

-

Balance as at September 30, 2004

16,850,000,000

15,580,550,482 96,732,486

19,574,938,937 204,390,852 54,323,756,432

Balance as at October 1, 2004

16,850,000,000

15,580,550,482

204,390,852

54,323,756,432

(419,647)

(318,041,127)

- Unrealised losses on current investment - available-for-sale securities Add Net Profits Less Dividends paid

3.14

Add Issued share capital

3.17

-

-

-

(317,621,480)

-

-

-

-

-

-

6,776,651,464

48,527,729

6,825,179,193

-

-

-

-

-

(1,692,076,200)

(35,100,000)

(1,727,176,200)

-

-

-

-

-

205,092,372

(96,720,486)

-

-

-

-

(96,720,486)

138,881,500

66,210,872

Add Proceeds from ESOP offering

-

-

16,988,881,500

15,646,761,354

Balance as at September 30, 2005

12,000

(477,805) 1,700,000,000

24,659,514,201 217,398,934 59,212,090,184

The accompanying notes are an integral part of these financial statements.

(Signed) Somchainuk Engtrakul

110

(Signed) Ngamnit Sombutpibool

(Somchainuk Engtrakul)

(Ngamnit Sombutpibool)

Board of Director

Executive Vice President

Acting as President

Finance and Accounting

Thai Airways International Public Company Limited


Unit : Baht THE COMPANY Notes

Share Capital

Premium

Proceeds Unrealised gain

issued and

on share

from

(losses)

Legal

Retained

Reserve

Earnings

Total

fully paid

capital

ESOP

available-for-

offering

sale securities

-

454,324,822

1,700,000,000

17,994,101,711

38,898,426,533

Unappropriated

Balance as at October 1, 2003 (before adjustment)

14,000,000,000

4,750,000,000

- Cumulative effect of change in accounting policy for D-check

-

-

-

-

-

(1,652,114,839)

(1,652,114,839)

-

-

-

-

-

(580,558,742)

(580,558,742)

-

-

-

-

-

(650,827,643)

(650,827,643)

-

454,324,822

1,700,000,000

15,110,600,487

36,014,925,309

- Cumulative effect of change in accounting policy for depreciation of aircraft seats - Cumulative effect of change in accounting policy for depreciation of in-flight equipment Balance as at October 1, 2003 (after adjustment)

14,000,000,000

4,750,000,000

- Unrealised gain on current investment - available-for-sale securities Add Net Profits Less Dividends paid

-

-

-

(137,181,147)

-

-

-

-

-

-

-

10,076,838,450

-

-

-

-

(5,612,500,000)

-

-

-

-

13,680,550,482 96,732,486

-

Add Issued share capital

2,850,000,000

10,830,550,482

(137,181,147) 10,076,838,450 (5,612,500,000)

Add Proceeds from ESOP offering

-

-

96,732,486

-

-

-

16,850,000,000

15,580,550,482

96,732,486

317,143,675

1,700,000,000

19,574,938,937

54,119,365,580

16,850,000,000

15,580,550,482

96,732,486

317,143,675

1,700,000,000

19,574,938,937

54,119,365,580

-

Balance as at September 30, 2004 Balance as at October 1, 2004 - Unrealised losses on current investment - available-for-sale securities Add Net Profits Less Dividends paid

3.14

Add Issued share capital

3.17

-

-

-

(317,621,480)

-

-

-

-

-

-

6,776,651,464

6,776,651,464

-

-

-

-

-

(1,692,076,200)

(1,692,076,200)

-

-

-

-

205,092,372

(96,720,486)

-

-

-

(96,720,486)

1,700,000,000

24,659,514,201

138,881,500

66,210,872

(317,621,480)

Add Proceeds from ESOP offering

-

-

16,988,881,500

15,646,761,354

Balance as at September 30, 2005

12,000

(477,805)

58,994,691,250

The accompanying notes are an integral part of these financial statements.

(Signed) Somchainuk Engtrakul

(Signed) Ngamnit Sombutpibool

(Somchainuk Engtrakul)

(Ngamnit Sombutpibool)

Board of Director

Executive Vice President

Acting as President

Finance and Accounting

Annual Report 2005

111


Thai Airways International Public Company Limited and its Subsidiary For the years ended September 30, 2005 and 2004

Statements of Cash Flows

Unit : Baht CONSOLIDATED 2005

THE COMPANY 2004

2005

(restated)

2004

(restated)

Cash flows from operating activities Net profit

6,776,651,464

10,076,838,450

6,776,651,464

10,076,838,450

13,155,407,827

11,932,029,629

13,091,686,866

11,901,098,399

(127,495,109)

(158,038,591)

(186,806,778)

(242,334,794)

92,814,717

385,666,247

92,394,036

385,666,247

Adjustment to reconcile net profit to cash provided by (paid from) operating activities : Depreciation Income from investments by the equity method Losses on sales of assets Cumulative effect of change in accounting policies regarding D-check overhaul cost

-

402,917,406

-

402,917,406

Cumulative effect of accounting adjustment

-

(195,293,446)

-

(195,293,446)

Gain on current investments-available-for-sale securities Amortisation of deferred charges Losses (gains) on foreign currency exchange Net profit of minority interests

(373,775,096)

(193,572,061)

(371,486,133)

(193,358,041)

119,187,843

208,858,088

119,187,843

208,858,088

(1,402,910,156)

2,385,192,633

(1,402,910,156)

2,385,192,633

48,527,729

68,969,621

Provision for contingent liabilties

141,049,404

Reserve for obsolete inventories

(27,972,118)

-

-

-

141,049,404

-

99,621,574

(27,972,118)

99,621,574

(29,750,469)

21,696,573

(37,148,730)

14,613,414

18,371,736,036

25,034,886,123

18,194,645,698

24,843,819,930

Trade account receivables

(357,426,873)

(2,469,098,703)

(352,833,608)

(2,464,817,963)

Inventories and supplies

(799,189,084)

(738,538,051)

(799,189,084)

(738,538,051)

Prepaid expenses and deposits

717,933,681

(1,209,316,628)

720,824,730

(1,209,234,464)

Tax refund

(1,829,515,476)

(460,323,195)

(1,829,515,476)

(460,323,195)

Other current assets

(1,278,695,912)

(554,274,833)

(1,281,648,010)

(551,476,028)

Deferred income taxes

738,872,420

623,561,985

741,047,198

625,693,053

Deferred charges

(505,893,562)

(687,935,494)

(505,893,562)

(687,935,494)

Allowance for doubtful accounts and impairment in value of assets Operating profit before changes in operating assets and liabilities Decrease (increase) in operating assets :

Concessions for acquisitions of aircraft and engines

-

247,550,738

-

247,550,738

Increase (decrease) in operating liabilities : Trade account payables

1,325,681,733

1,999,386,949

1,318,767,178

2,001,577,727

Accrued expenses and other current liabilities

1,423,363,992

2,543,675,447

1,431,296,512

2,531,794,071

Staff pension fund Unearned transportation revenue Net cash from operating activities

321,969,978

491,470,228

321,969,978

491,470,228

1,411,709,777

2,476,893,182

1,411,709,777

2,476,893,182

19,540,546,710

27,297,937,748

19,371,181,331

27,106,473,734

The accompanying notes are an integral part of these financial statements.

112

Thai Airways International Public Company Limited


Unit : Baht CONSOLIDATED 2005

THE COMPANY 2004

2005

2004

(restated)

(restated)

Cash flows from investing activities Cash paid for acquisition of fixed assets

(46,064,456,833)

(23,596,341,674)

(46,043,218,259)

(23,571,055,968)

Cash received from transferring down payment of aircraft and aircraft spare parts Cash received from sales of assets

2,135,303,727

-

2,135,303,727

-

298,727,912

244,945,484

298,727,912

244,945,484

8,482,525

(252,765,441)

51,382,525

(127,190,441)

377,320,653

197,237,717

377,320,653

197,237,717

(43,244,622,016)

(23,406,923,914)

(43,180,483,442)

(23,256,063,208)

30,000,000,000

10,000,000,000

30,000,000,000

10,000,000,000

Investments decrease (increase) Cash received from current investments-available-for-sale securities Net cash used in investing activities Cash flows from financing activities Cash received from debentures Cash received from short-term loans Cash received from long-term loans

-

4,010,000,000

1,211,018,582

-

4,010,000,000

10,468,243,651

1,211,018,582

10,468,243,651

Cash received from issuing ordinary shares

74,418,950

2,850,000,000

74,418,950

2,850,000,000

Cash received from premium on ordinary shares

33,940,936

10,830,550,482

33,940,936

10,830,550,482

12,000

96,732,486

12,000

96,732,486

Cash received from subscription of ESOP Cash paid for repayment of short-term loans

-

(8,019,640,000)

-

(8,019,640,000)

Cash paid for repayment of long-term loans

(15,770,087,802)

(15,363,440,903)

(15,770,087,802)

(15,363,440,903)

Cash paid for repayment of promissory notes

(1,050,000,000)

(1,050,000,000)

(1,050,000,000)

(1,050,000,000)

Dividends paid

(1,725,307,795)

(5,616,979,461)

(1,690,207,826)

(5,596,054,461)

12,773,994,871

8,205,466,255

12,809,094,840

8,226,391,255

(10,930,080,435)

12,096,480,089

(11,000,207,271)

12,076,801,781

(28,433,054)

50,089,471

(28,433,054)

50,089,471

Cash and cash equivalents at the beginning of the periods

20,888,514,393

8,741,944,833

20,618,162,278

8,491,271,026

Cash and cash equivalents at the end of the periods

9,930,000,904

20,888,514,393

9,589,521,953

20,618,162,278

Interest expenses

3,326,878,784

4,406,025,252

3,326,878,784

4,406,025,252

Corporate income tax

4,176,894,838

5,007,861,817

4,101,310,724

4,950,829,069

Net cash from financing activities Increase (decrease) in cash and cash equivalents Increase (decrease) in the effect from changing in exchange rate on cash and cash equivalents

Supplementary cash flows information : Cash paid during the year for

Non - cash item Assets under financial lease

16,116,659,936

-

16,116,659,936

-

The accompanying notes are an integral part of these financial statements.

(Signed) Somchainuk Engtrakul (Somchainuk Engtrakul)

(Signed) Ngamnit Sombutpibool (Ngamnit Sombutpibool)

Board of Director

Executive Vice President

Acting as President

Finance and Accounting

Annual Report 2005

113


Notes to the Financial Statements

Thai Airways International Public Company Limited and its Subsidiary For the years ended September 30, 2005 and 2004

1. BASIC OF FINANCIAL STATEMENT PREPARATION The Company’s financial statements consist of Thai Airways International Public Company Limited and the Company’s staff pension fund. The consolidated financial statements consist of the Company and its subsidiary, Thai-Amadeus Southeast Asia Company Limited, in which the Company holds equity interests of 55%. Significant transactions between the Company and its subsidiary have been eliminated from the consolidated financial statements. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1 Allowance for Doubtful Accounts An allowance for doubtful accounts is established for trade account receivables, excluding those from government agencies and state enterprises, which are more than 6 months overdue: Period overdue

Allowance for doubtful accounts (%)

6 months up to 1 year 1 year up to 2 years 2 years or more

50 75 100

Allowance for doubtful accounts for contingent estimated losses that may result from uncollectable trade account receivables, including government agencies and state enterprises, is estimated from historical collection experience and the position of account receivables at the balance sheet date. 2.2 Inventories and Supplies Inventories and supplies at the year-end are stated at the lower of moving average cost or net realisable value, except inventories in transit are stated at purchased date cost. - Provision for obsolescence of aircraft spare parts is made at an annual rate of 10% of the year-end balance. - Slow moving aircraft spare parts and spare parts for sales are spare parts not moving over two years or spare parts for aircraft not represented in the fleet. Provision for obsolescence is made at an annual rate of 33.33% of the incurred balance during the year. - Provision for obsolete and damaged inventories is made at the full amount. 2.3 Investments 2.3.1 Investments in subsidiary and associated companies are stated by the equity method. 2.3.2 Long-term investments in non-marketable equity securities are stated at cost net of a provision for impairment. An impairment loss is recognised in the income statement. 2.3.3 Current investments in marketable equity securities are stated at market value at the year-end. Gain or loss on change in value of trading securities is recognised in the income statement. For available-for-sale securities, the Company recognises gain or loss on change in value as an unrealised gain or loss under shareholders’ equity. 2.4 Property, Plant and Equipment and Depreciation 2.4.1 Aircraft and aircraft under financial leases are stated at cost, including where applicable (engines and other flight equipment), cost of decoration and acquisition, and interest on loans for the purchase of the aircraft incurred prior to the aircraft being placed into service but excluding passenger seats and the first estimated overhaul cost, less any concessions for the acquisition of aircraft. Depreciation is calculated on a straight-line basis over an estimated useful life of 20 years with a salvage value of 10 % of cost. 2.4.2 Aircraft overhaul (D-check) costs, the first estimated overhaul costs, are presented as separate assets from the aircraft cost and depreciated over the period of the next scheduled overhaul 4-7 years depending on type of aircraft. When these costs incur, the asserted assets will be expensed and replaced by the incurred overhaul cost. 2.4.3 Passenger seats are presented as separate assets from the aircraft cost and depreciated on a straight-line basis over an estimated useful life of 5 years. When the replacement costs incur, they are accounted for as the separate assets and the replaced assets will be written off. 2.4.4 Aircraft spare parts are stated at cost on the acquisition date and depreciated on a straight-line basis over an estimated useful life of 5-20 years.

114

Thai Airways International Public Company Limited


2.4.5 Other fixed assets are stated at cost on the acquisition date or on the date of completion of construction and depreciated on a straight-line basis over an estimated useful life of 5-20 years. 2.4.6 Leasehold buildings are amortised over a period of 10 years. 2.4.7 Gain or loss on sale of aircraft is calculated from the difference between the sale price and the net book value of the aircraft, including D-check and improvements to passenger seats net of sales expense. Gain or loss on sale of other assets is calculated from the difference between the sale price and net book value of sold assets and recognised as revenue or expense in the income statement. 2.5 Deferred Charges 2.5.1 Aircraft overhaul costs (D-check) for aircraft under operating lease are presented as deferred charges and recognised as expenses over an estimated useful life of 4-7 years but not over the lease term. 2.5.2 Loan guarantee premiums are recorded as deferred charge and amortised as expenses over the period of loans in each accounting period. 2.6 Concessions for the Acquisition of Aircraft and Engines The Company records its concessions received under contracts for the acquisition of aircraft and engines as “Concessions for acquisitions of aircraft and engines” (other assets), together with “Deferred concessions to reduce cost of aircraft” (other liabilities). When aircraft and engines are received, the relevant concession amount is transferred from “Deferred concessions to reduce cost of aircraft” to reduce cost of received aircraft. When assets or services under concessions are received, amounts from “Concessions for acquisitions of aircraft and engines” are transferred to assets or expensed, as appropriate. 2.7 Liabilities Under Financial Leases Liabilities under financial leases are liabilities from the purchase of aircraft under long-term financial leases with financial institutions and are stated at obligation value less aggregate repayments. 2.8 Revenue Recognition 2.8.1 Passenger and excess baggage revenues: -

Revenue from ticket sales and service orders is recognised as revenue when transportation is provided. For passengers

using the services of other airlines, the difference between the selling price charged by the Company and the amount billed to the Company by those airline performing the services is recognised as revenue. -

Unused tickets and service orders are recognised as revenue after 2 years.

2.8.2 Freight revenue is recognised when the Company provides the services and issues its air waybills. For freight carried by other air carriers, the difference between the selling price charged by the Company and the amount billed to the Company by those air carriers performing the services is recognised as revenue. -

Freight with respect to which the Company has issued an air waybill but which is carried by other air carriers is

recognised as revenue if the other air carriers do not bill within 1 year. 2.8.3 The Company has operated a frequent flyer programme called “Royal Orchid Plus” since 1993. Members exchange accumulated mileage for services. The Company calculates cost per mile by dividing the average net collected fare in each zone by the number of miles redeemed for awards in that zone. The Company estimates the number of miles utilised by members based upon the weighted zonal redemption. The estimated cost is used to reduce passenger revenues and record liability under “unearned transportation revenue”. Revenues are recognised when members redeem awards. -

Unredeemed awards are recognised as revenue after 3 years.

-

Redemptions with Star Alliance partners involve interline billing arrangements and costs per mile specified in partner

agreements. Revenues are recognised when transportation is provided. -

The Company sells mileage to its members in order to encourage redemptions and recognises the difference between

the sale price and mileage cost as revenue. 2.8.4 Revenues from business units, Technical Services, Customer Services, Ground Support Equipment Services and Cargo Services are recognised when services are provided. Revenues from Catering, Sales on Board and Thai Shop are recognised at sale. 2.8.5 Other revenues are recognised on an accrual basis.

Annual Report 2005

115


2.9 Basic Earnings Per Share Basic earnings per share is calculated by dividing net profit for the year by the weighted average number of ordinary shares outstanding during the period. 2.10 Foreign Currency Transactions Foreign currency transactions incurred during the year are translated into Baht at exchange rates calculated from the average exchange rate of the Bank of Thailand and commercial banks in the month in which the transaction occurs. Except for foreign loans, the Company uses the exchange rate of Bank of Thailand at cash recurred date. Assets and liabilities denominated in foreign currency at year-end are translated into Baht at average commercial bank buying and selling rates announced by the Bank of Thailand at that date. Gains or losses on currency exchange are recognised in the income statement. 2.11 Staff Provident Fund On June 26, 1992, the Company established an “Employee of Thai Airways International Public Company Limited Registered Provident Fund” in accordance with the Provident Fund Act B.E. 2530. The fund is managed by a professional fund manager and does not appear on the Company’s balance sheet. The Company contributes to the fund on a monthly basis at a rate of 9% of salaries for members having not more than 20 years of service and 10% for members having more than 20 years of service. Contributions are treated as expenses of the Company. 2.12 Deferred Income Tax Deferred income tax are calculated to comply with Accounting Standard No.56 effective on or after January 1, 2007. The Company early adopted such standard in fiscal year 2002. For the Company’s tax expense is calculated in accordance with the Revenue Code. 2.13 Accounting Estimations The Company and its subsidiary have applied the accounting estimations and many assumptions in preparation financial statements to conform to the generally accepted accounting principles. These will impact on the amounts of assets, liabilities, revenues, expenses as well as the disclosure of contingent assets and liabilities which may be differed from the actualities. 2.14 Financial Instrument The Company uses derivative products which are Interest Rate Swap (IRS) and Cross Currency Swap (CCS) to reduce the fluctuation risk from an interest rate and exchange rate by entering into a forward contractual agreement to exchange the principal amount and interest rest at maturity according to the contract. The different gain/loss will be recorded as interest income/expenses in income statement. In addition, the Company also entered into fuel-oil hedging agreement in which premiums and the difference of the fuel price will be recorded as expenses in income statement. 3. SUPPLEMENTARY INFORMATION 3.1 Cash and Cash Equivalents Unit : Million Baht Consolidated 2005

2004

2005

2004

Cash - Domestic

13.27

11.71

13.27

11.71

Cash - Abroad

27.50

17.00

27.50

17.00

Bank Deposits - Domestic

3,907.86

3,817.79

3,567.38

3,547.44

Bank Deposits - Abroad

5,981.37

17,042.01

5,981.37

17,042.01

9,930.00

20,888.51

9,589.52

20,618.16

Total

116

The Company

Thai Airways International Public Company Limited


3.2 Current Investments - Available-for-Sale Securities On June 27, 2002, the Company received 508,937 shares in FRANCE TELECOM, listed on the Bourse de Paris and the New York Stock Exchange, from SITA. In the first quarter, the Company sold all 316,957 shares amount of THB 377.83 million. The Company has gain on sales of shares amount of THB 371.49 million. 3.3 Trade Account Receivables - Net Trade account receivables are classified according to their stages of delinquency, as expressed in the schedule below. Unit : Million Baht Consolidated 2005

The Company

2004

2005

2004

15,398.90

14,969.86

15,358.19

14,926.95

109.04

84.47

106.31

76.85

59.04

41.14

46.75

36.25

Period of overdue Not over 6 months Over : 6 months to 1 year Over : 1 year to 2 years Over : 2 years Less Allowance for doubtful accounts Trade account receivables - net

1,110.20

1,200.41

1,102.37

1,196.87

16,677.18

16,295.88

16,613.62

16,236.92

(1,209.00)

(1,273.50)

(1,190.58)

(1,262.48)

15,468.18

15,022.38

15,423.04

14,974.44

3.4 Inventories and Supplies - Net Unit : Million Baht Consolidated Aircraft spare parts Less Provision for obsolescence

The Company

2005

2004

2005

2004

4,278.83

3,454.74

4,278.83

3,454.74

(427.88)

(345.47)

(427.88)

(345.47)

3,850.95

3,109.27

3,850.95

3,109.27

(10% of the year-end balance) Aircraft spare parts - Net Vehicle spare parts and ground support equipment

162.13

157.38

162.13

157.38

1,750.43

2,189.44

1,750.43

2,189.44

(1,675.34)

(1,922.88)

(1,675.34)

(1,922.88)

75.09

266.56

75.09

266.56

Fuel and oil for aircraft

204.49

203.22

204.49

203.22

Goods for sale

262.89

204.93

262.89

204.93

Cabin supplies

219.93

143.62

219.93

143.62

29.71

31.09

29.71

31.09

102.13

81.30

102.13

81.30

Slow moving aircraft spare parts and spare parts of sale Less Provision for obsolescence (33.33% of incurred balance during the year) Slow moving aircraft spare parts and spare parts for sale - Net

Supplies and other consumables Stationery and office supplies Inventories and spare parts in transit

188.67

77.99

188.67

77.99

1,007.82

742.15

1,007.82

742.15

Obsolete and damaged inventories for disposal

14.00

13.51

14.00

13.51

Less Provision for obsolescence (100%)

(14.00)

(13.51)

(14.00)

(13.51)

Obsolete and damaged inventories for disposal - Net

-

-

-

-

Total inventories and supplies - Net

5,095.99

4,275.36

5,095.99

4,275.36

Total inventories and supplies at year-end

7,213.22

6,557.22

7,213.22

6,557.22

(2,117.23)

(2,281.86)

(2,117.23)

(2,281.86)

5,095.99

4,275.36

5,095.99

4,275.36

Less Total provision for obsolete inventories and supplies Total inventories and supplies - Net

Annual Report 2005

117


3.5 Other Current Assets Unit : Million Baht Consolidated

The Company

2005

2004

2005

2004

Prepaid expenses and deposits

4,920.62

5,802.20

4,917.44

5,801.91

Tax refund

2,289.84

460.32

2,289.84

460.32

Cash and fixed deposits of pension fund

4,126.62

3,897.86

4,126.62

3,897.86

Others Total

2,317.05

1,321.21

2,296.97

1,298.18

13,654.13

11,481.59

13,630.87

11,458.27

Cash and fixed deposits of the Company’s pension fund was discussed in Note 3.23. 3.6 Investments Consolidated Unit : Million Baht Name of Company

Percentage of Shareholding 2005

2004

Investments Cost method

Income on

Equity method

investments

2005

2004

2005

2004

2005

2004

3.6.1 Investments using the equity method Thai Information Solution Company Limited

-

100

-

125.00

-

103.27

-

0.44

Royal Orchid Hotel (Thailand) Public Co., Ltd.

24

24

225.00

225.00

294.72

283.74

62.74

23.51

40

40

48.00

48.00

175.69

157.38

56.71

32.44

22.6

22.6

76.79

76.79

424.88

415.52

41.04

81.98

(Market value for the year 2005 amount of THB 630.00 million and the year 2004 amount of THB 630.00 million) Donmuang International Airport Hotel Company Limited Bangkok Aviation Fuel Services Public Company Limited (Market value for the year 2005 amount of THB 863.90 million and the year 2004 amount of THB 829.34 million) Phuket Air Catering Company Limited

30

30

30.00

30.00

44.45

43.98

4.97

19.67

Suvarnabhumi Airport Hotel Company Limited

30

30

305.33

123.58

297.77

123.58

(7.57)

-

Sky Asia Company Limited

39

39

195.00

195.00

164.61

195.00

(30.39)

-

1,402.12 1,322.47

127.50

158.04

133.00

-

-

Total investments using the equity method 3.6.2 Other long-term investments stated at cost Fuel Pipeline Transportation Limited

8.4

8.4

Aeronautical Radio of Thailand Limited

2.9

3.5

19.17

22.94

-

-

SITA Investment Certificate

-

-

28.29

24.15

-

-

TRADESIAM Company Limited

3.5

3.5

1.75

1.75

-

-

-

-

36.19

133.00

(paid 25% of authorized share capital) SITA Information Networking Computing Other Shares Investment in private fund

-

-

-

2.98

3.02

1.49

1.75

101.63

100.28

-

-

(133.00)

(133.00)

-

-

190.01

152.14

1.49

1.75

Less Allowance for impairment of Fuel Pipeline Transportation Limited Total other long-term investments

118

Thai Airways International Public Company Limited


The Company Unit : Million Baht Percentage of Name of Company

Shareholding 2005

2004

Investments Cost method 2005

2004

Income on

Equity method

investments

2005

2004

2005

2004

265.71

249.81

59.31

84.29

-

103.27

-

0.44

265.71

353.08

59.31

84.73

3.6.1 Investments using the equity method Subsidiary Companies Thai-Amadeus Southeast Asia Company Limited Thai Information Solution Company Limited

55

55

-

100

8.25 -

8.25 125.00

Total Associated Companies Royal Orchid Hotel (Thailand) Public Co., Ltd.

24

24

225.00

225.00

294.72

283.74

62.74

23.51

40

40

48.00

48.00

175.69

157.38

56.71

32.44

22.6

22.6

76.79

76.79

424.88

415.52

41.04

81.98

Phuket Air Catering Company Limited

30

30

30.00

30.00

44.45

43.98

4.97

19.67

Suvarnabhumi Airport Hotel Company Limited

30

30

305.33

123.58

297.77

123.58

(7.57)

-

Sky Asia Company Limited

39

39

195.00

195.00

164.61

195.00

(30.39)

-

1,402.12 1,219.20

127.50

157.60

1,667.83 1,572.28

186.81

242.33

(Market value for the year 2005 amount of THB 630.00 million and the year 2004 amount of THB 630.00 million) Donmuang International Airport Hotel Company Limited Bangkok Aviation Fuel Services Public Company Limited (Market value for the year 2005 amount of THB 863.90 million and the year 2004 amount of THB 829.34 million)

Total Total investments using the equity method 3.6.2 Other long-term investments stated at cost Fuel Pipeline Transportation Limited

8.4

8.4

133.00

133.00

-

-

Aeronautical Radio of Thailand Limited

2.9

3.5

19.17

22.94

-

-

SITA Investment Certificate

-

-

28.29

24.15

-

-

TRADESIAM Company Limited

3.5

3.5

1.75

1.75

-

-

-

-

36.19

(paid 25% of authorized share capital) SITA Information Networking Computing Other Shares

-

-

-

2.98

3.02

1.49

1.75

(133.00)

(133.00)

-

-

88.38

51.86

1.49

1.75

Less Allowance for impairment of Fuel Pipeline Transportation Limited Total other long-term investments

Annual Report 2005

119


3.7 Related Parties The Company 3.7.1 Major shareholders Unit : Million Baht 2005

2004

Ministry of Finance Guaranteed loans Loans via the Ministry of Finance

450.00

1,677.42

19,476.59

28,893.01

3.7.2 Subsidiary company Unit : Million Baht 2005 Sales Name of Company

2004

Trade

Other

Account

Sales

Trade

Other

Account

Account

Account

Receivables

Receivables

Receivables

Receivables

0.14

15.44

0.17

15.82

Thai-Amadeus Southeast Asia Company Limited

55.13

72.00

The Company purchases goods and services from related parties on normal commercial terms. 3.8 Property, Plant and Equipment - Net Consolidated Unit : Million Baht Aircraft

Aircraft

Aircraft

Land and

under

spare parts

buildings

financial

Other plant

Total

and equipment

leases Cost As at October 1, 2004

133,963.88

66,648.10

25,231.18

10,213.45

22,863.03

258,919.64

- Adjust/Transfer

(5,206.20)

21.52

(489.68)

60.66

170.57

(5,443.13)

- Increased asset

30,023.28

20,753.19

5,647.45

106.08

8,459.95

64,989.95

(8.31)

(121.15)

(1,249.38)

(49.52)

(641.42)

(2,069.78)

158,772.65

87,301.66

29,139.57

10,330.67

30,852.13

316,396.68

74,665.51

10,712.23

16,356.78

7,494.92

15,648.94

124,878.38

6,260.55

3,446.96

2,031.06

371.00

1,045.83

13,155.40

(680.40)

5.92

(256.36)

-

(4.37)

(935.21)

(8.30)

(106.62)

(881.18)

(48.63)

(640.46)

(1,685.19)

80,237.36

14,058.49

17,250.30

7,817.29

16,049.94

135,413.38

As at September 30, 2004

59,298.37

55,935.87

8,874.40

2,718.53

7,214.09

134,041.26

As at September 30, 2005

78,535.29

73,243.17

11,889.27

2,513.38

14,802.19

180,983.30

- Sold As at September 30, 2005 Accumulated depreciation As at October 1, 2004 - Depreciation - Adjust/Transfer - Sold As at September 30, 2005 Net book value

120

Thai Airways International Public Company Limited


The Company Unit : Million Baht Aircraft

Aircraft

Aircraft

Land and

Other plant

under

spare parts

buildings

and

financial

Total

equipment

leases Cost As at October 1, 2004

133,963.88

66,648.10

25,231.18

10,213.45

22,698.62

258,755.23

- Adjust/Transfer

(5,206.20)

21.52

(489.68)

60.66

175.83

(5,437.87)

- Increased asset

30,023.28

20,753.19

5,647.45

106.08

8,438.29

64,968.29

- Sold

(8.31)

(121.15)

(1,249.38)

(49.52)

(641.42)

(2,069.78)

158,772.65

87,301.66

29,139.57

10,330.67

30,671.32

316,215.87

74,665.51

10,712.23

16,356.78

7,494.92

15,569.86

124,799.30

6,260.55

3,446.96

2,031.06

371.00

982.11

13,091.68

(680.40)

5.92

(256.36)

-

0.05

(930.79)

(8.30)

(106.62)

(881.18)

(48.63)

(640.46)

(1,685.19)

80,237.36

14,058.49

17,250.30

7,817.29

15,911.56

135,275.00

As at September 30, 2004

59,298.37

55,935.87

8,874.40

2,718.53

7,128.76

133,955.93

As at September 30, 2005

78,535.29

73,243.17

11,889.27

2,513.38

14,759.76

180,940.87

As at September 30, 2005 Accumulated depreciation As at October 1, 2004 - Depreciation - Adjust/Transfer - Sold As at September 30, 2005 Net book value

In this fiscal year, there are 87 aircraft in the Company’s fleet consisting of 59 own aircraft, 16 aircraft under financial leases, and 12 aircraft under operating leases. Three aircraft are leased by Sky Asia Company Limited. Aircraft spare parts consist of aircraft engines and other aircraft spare parts. Other plants and equipment-net amount of THB 14,802.19 million (consolidated) and THB 14,759.76 millions (the Company) have already included the work in progress of Suvarnabhumi project amount of THB 9,456.72 million consisting of building, facilities, equipment and information technology which support to the services in Suvarnabhumi Airport. The Company uses buildings and equipment purchased at THB 33,387.29 million that are now fully depreciated. 3.9 Non - Current Assets - Others Unit : Million Baht Consolidated 2005

Deferred charges Deferred income taxes Total

The Company

2004

2005

2004

775.06

824.99

775.06

824.99

4,139.49

4,878.36

4,130.19

4,871.23

4,914.55

5,703.35

4,905.25

5,696.22

Deferred charges consisted of aircraft overhaul costs ( D-check ) for aircraft under operating lease which are amortised as expenses over an estimated useful life of 4-7 years but not over the lease term and loan guarantee premiums for purchasing of aircraft are amortised as expenses over the period of due payment loans.

Annual Report 2005

121


3.10 Long-term Loans Consolidated and the Company Loan Currencies

Loan Currency

Baht Equivalent (Million)

2005

2004

2005

2004

18,000,000,000

23,000,000,000

6,569.26

8,659.06

USD

313,989,666

508,757,661

12,907.33

21,161.37

THB

450,000,000

750,000,000

450.00

750.00

19,926.59

30,570.43

6,117.20

10,283.62

13,809.39

20,286.81

JPY

Total Long-term loans Less Current portion of long-term loans Net Long-term loans

At the end of fiscal year 2005, the outstanding of long-term loans for 14 aircraft consisted of loans from the Ministry of Finance and domestic financial institutions amount of THB 19,926.59 million at the interest rates ranging from 1.13 % to 8.80% per annum. 3.11 Liabilities Under Financial Leases Consolidated and the Company Loan Currencies

Loan Currency

Baht Equivalent (Million)

2005

2004

2005

2004

68,932,640,150

76,418,137,157

25,157.59

28,769.98

USD

329,857,098

388,287,049

13,559.60

16,150.49

EUR

341,911,041

JPY

Total Financial lease

-

16,971.50

-

55,688.69

44,920.47

Less Current portion of financial leases

6,587.59

5,248.50

Net Liabilities under financial leases

49,101.10

39,671.97

For certain of its aircraft, the Company has financial leases with buyout options. The Company had financial leases with 5 foreign financial institutions. The accounting policy for recording aircraft under financial leases is described in Note 2.7. In fiscal year 2005, the Company has outstanding obligations totalling THB 61,090.65 million under financial leases for 16 aircraft with maturities ranging from 2005 to 2017. After deducting interest due amount of THB 5,401.96 million, the principal balance of obligations under the Company’s financial leases is THB 55,688.69 million. The Company has entered into a long-term loan contract in the form of Asset-Based Financing for Airbus A340-500 No.1 and 2 for an aggregate of EUR 165.04 million or approximately THB 8,460.23 million and Airbus A340-600 No.1 and 2 for an aggregate of EUR 181.56 million or approximately THB 9,101.94 million which the European Export Credit Agencies (ECA) is a guarantor. 3.12 Promissory Notes The Company has loaned from the Government Saving Bank and THAI Employees’ Saving & Credit Coops Ltd. by issuing promissory notes with a floating interest rate computed by using the interest rate on six-month fixed deposits at the Government Saving Bank plus 2.90% to 3.00% per annum. Such issuances financed the purchase of Boeing 747-400 No.14 and the payment of Airbus A330-300 No.12. In this fiscal year, the brought forward balance was THB 6,300.00 million and the amount of THB 1,050.00 million was repaid during the period, leaving a balance of THB 5,250.00 million ( THB 3,250.00 million from the Government Saving Bank and THB 2,000.00 million from THAI Employees’ Saving & Credit Coops Ltd.). As at September 30, 2005, these promissory notes were transferred to current portion of long-term loans in the amount of THB 1,050.00 million, leaving the long-term liabilities balance at THB 4,200.00 million. 3.13 Provision for Contingent Liability In this fiscal year, the Company estimated an obligation of contingent liability arising from dispute cases amount of THB 141.05 million.

122

Thai Airways International Public Company Limited


3.14 Dividends the Company According to the Annual General Shareholders’ Meeting for the year 2004 held on December 17, 2004 approved the Company to pay the dividends for the second half-year 2004 operation at THB 1.00 per share for an aggregate of THB 1,692.08 million (1,685,000,000 old shares plus 7,076,200 new shares, totalling 1,692,076,200 shares). 3.15 Current Liabilities - Others Unit : Million Baht Consolidated

The Company 2005

2004

3,050.02

2,902.92

3,050.02

3.58

229.11

2.75

229.11

Taxes payable

361.39

340.20

360.14

339.25

Fringe benefits-field office staff

471.28

484.54

471.28

484.54

Other account payables

836.21

625.02

817.14

602.61

4,575.38

4,728.89

4,554.23

4,705.53

Airport fees Deferred income

Total

2005

2004

2,902.92

3.16 Debenture Bonds According to the Resolution of Extraordinary Shareholders’ Meeting No. 1/2546 held on September 2, 2003 approved the Company to issue debentures in the amount of THB 40 billion. The Company has already issued its debentures for the first tranch of THB 10 billion, the second tranch of THB 15 billion, and the third tranch of THB 15 billion, totalling to THB 40 billion which has already been transferred to the Company’s account. The details are as follows: Tenor

Interest Rate

Amount

(Year)

Pay every 6 months

(MTHB)

Maturity date

(%) The first

5

3.00

5,500

October 8, 2008

7

3.70

4,500

October 8, 2010

The balance as at September 30, 2004 The second

10,000 5

4.65

7,500

October 20, 2009

7

5.20

4,500

October 20, 2011

10

5.80

3,000

October 20, 2014

3

3.82

6,000

May 12, 2008

6

4.67

6,000

May 12, 2011

10

5.19

3,000

May 12, 2015

15,000

The third

15,000

The balance as at September 30, 2005

40,000

The Company has registered these debentures with the Thai Bond Dealing Center (THAI BDC) in the bond electronic exchange of the Stock Exchange of Thailand.

Annual Report 2005

123


3.17 Share Capital As at September 30, 2005, the Company has authorized ordinary shares amount of 1,700 million shares at par value THB 10 each for an aggregate of THB 17 billion, issued and paid-up ordinary shares amount of THB 16,988.89 million. The details are as follows: No. of Shares

Issued and Paid-up

(Shares)

Shares(THB)

1,685,000,000

16,850,000,000

7,076,200

70,762,000

3,350

33,500

6,797,000

67,970,000

11,600

116,000

1,698,888,150

16,988,881,500

As at September 30, 2004 On October 15, 2004, the employees subscribed the ordinary shares and 1st exercised type-one warrants. On January 13, 2005, the employees 2nd exercised type - one warrants. On May 9, 2005, the employees 2nd subscribed the ordinary shares, rd

st

3 exercised type-one warrants and 1 exercised type-two warrants. On July 18, 2005, the employees 4th exercised type - one warrants nd

and 2 exercised type-two warrants. Total

The Company determined the 5th exercise of type-one warrants and 3rd exercise of type-two warrants to purchase ordinary shares on September 27 - October 3, 2005. As at September 30, 2005, the proceeds from these shares are THB 0.01 million presented in shareholders’ equity under “the proceeds from ESOP offering”. 3.18 Legal Reserve At the end of fiscal year 2004, the Company’s legal reserve balance was THB 1,700.00 million which equaled to 10% of the Company’s registered shares. Therefore, the Company does not have to provide the legal reserve in this fiscal year. 3.19 Other Incomes - Others Unit : Million Baht Consolidated 2005

The Company

2004

2005

2004

Compensation revenues from insurance companies (asset)

94.64

58.74

94.64

58.74

Gains (losses) on sales of assets

15.98

(74.41)

15.98

(74.41)

1.49

1.75

1.49

1.75

371.49

199.43

371.49

199.22

1,587.08

769.40

1,583.96

766.43

2,070.68

954.91

2,067.56

951.73

Revenue from investments Revenue from current investments Other incomes Total

124

Thai Airways International Public Company Limited


3.20 Other Expenses - Others Unit : Million Baht Consolidated 2005

Bad and doubtful debts

The Company

2004

2005

2004

46.71

49.81

39.31

42.73

Credit card fees

346.90

304.11

346.90

304.11

Compensation to customers for damages

124.03

104.56

124.03

104.56

57.71

65.42

57.65

65.37

575.35

523.90

567.89

516.77

Other expenses Total 3.21 Earnings Per Share Consolidated and the Company

Basic earnings per share is calculated by dividing net profit for the period by the weighted average number of ordinary shares outstanding during the periods. Diluted earnings per share is calculated by dividing net profit for the period by the weighted average number of ordinary shares outstanding during the period adjusted by all dilutive potential ordinary shares under the assumptions that all dilutive potential ordinary shares are converted into ordinary shares. The dilutive potential ordinary shares of the Company are ordinary shares and warrants to purchase the ordinary shares under ESOP. Consolidated and the Company For the years ended September 30, 2005 Gains

No. of Shares

Earnings

(THB)

(Shares)

per share (THB)

6,776,651,464

1,694,509,741.23

Ordinary shares not exercising the rights

-

-

Warrants to purchase ordinary shares not exercising the rights

-

14,358.16

Basic earnings per share Net Profits attributable to ordinary shareholders

4.00

Effects of dilutive potential ordinary shares

Diluted earnings per share Net Profits attributable to ordinary shareholders under conversion assumption to ordinary shares

6,776,651,464

1,694,524,099.39

4.00

Annual Report 2005

125


3.22 Financial Information by Segment Consolidated 3.22.1 Business segments Statements of Income For the year ended September 30, 2005 and 2004 Unit : Million Baht Inter - Segment Revenues

Revenues

Total Revenues

Segment Results

2005

2004

2005

2004

2005

2004

2005

2004

154,731.70

145,710.80

-

-

154,731.70

145,710.80

8,197.17

16,709.54

Business Units

7,070.21

6,607.88

13,116.43

13,410.34

20,186.64

20,018.22

2,422.13

3,616.30

Other activities

686.31

284.34

334.00

341.96

1,020.31

626.30

204.97

171.89

-

-

(13,450.43)

(13,752.30)

-

-

-

Air transportation

Eliminations

-

Operating profits

10,824.27

20,497.73

127.49

158.04

(3,966.22)

(4,584.82)

1,469.71

(2,178.95)

1,451.32

392.06

(48.53)

(68.97)

(3,081.39)

(4,138.25)

6,776.65

10,076.84

Share of net profit from subsidiary and associated companies Interest expenses-net Gains (losses) on foreign currency exchange Other revenues Minority interests Income taxes Net profits

Assets and Liabilities For the year ended September 30, 2005 and 2004 Unit : Million Baht Current Assets

Non-Current Assets

Total Assets

2005

2004

2005

2004

2005

2004

40,679.67

49,198.21

185,118.28

138,559.50

225,797.95

187,757.71

Business Units

882.63

429.30

2,218.33

2,466.98

3,100.96

2,896.28

Other activities

2,586.00

2,363.80

153.37

192.74

2,739.37

2,556.54

44,148.30

51,991.31

187,489.98

141,219.22 231,638.28

193,210.53

Air transportation

Total

Unit : Million Baht Current Liabilities

Total Liabilities

2005

2004

2005

2004

2005

2004

60,198.68

58,958.75

111,572.45

79,305.99

171,771.13

138,264.74

Business Units

214.83

170.12

80.79

123.56

295.62

293.68

Other activities

359.44

328.36

-

-

359.44

328.36

60,772.95

59,457.23

79,429.55 172,426.19

138,886.78

Air transportation

Total

126

Non-Current Liabilities

Thai Airways International Public Company Limited

111,653.24


Segment results derive from segment revenues net of segment expenses excluding interest expenses, gains(losses) on foreign currency exchange, other expenses, and income taxes. Segment current and non-current assets are those operating assets that are employed by a segment in its operating activities. Segment current and non-current liabilities are those operating liabilities that result from the operating activities of a segment. The Company records inter-segment revenue transfers at market price charged to its unaffiliated customer net of discount. Those transfers are eliminated in consolidation. 3.22.2 Geographical segments Unit : Million Baht 2005

2004

Transportation

10,379.42

11,555.07

Business units

6,667.49

6,192.49

Other activities

1,089.03

699.73

18,135.94

18,447.29

Regional Asia

69,830.04

68,535.88

Europe

44,656.81

42,389.41

4,559.26

4,255.43

12,239.28

12,348.84

131,285.39

127,529.56

Charter revenues and others

4,767.66

3,028.57

Insurance surcharge from passengers

2,540.43

3,055.32

Domestic Revenues

Total domestic revenues Foreign Transportation Revenues

North Pacific Australia & New Zealand Total foreign transportation revenues

Fuel surcharge from passengers Total

5,758.80

542.28

162,488.22

152,603.02

3.23 Staff Pension Fund Consolidated and the Company The Company has established a staff pension fund, contributing 10% of employee salaries to the fund each month. The fund’s assets and liabilities are presented in the Company’s balance sheet. Interest and expenses arising from fund operations are recognised as income and expenses of the Company. The details are as follows: Unit : Million Baht 2005

Cash and cash equivalents Fixed deposits due over 3 months Other current assets

Other current liabilities Pension fund

2004

162.37

89.93

3,964.25

3,807.94

15.43

14.89

4,142.05

3,912.76

14.49

14.69

4,542.74

4,220.77

4,557.23

4,235.46

As at September 30, 2005, the fund balance was THB 4,542.74 million, equal to the Company’s obligation to its staff under the fund. The total Company contribution to the fund in fiscal year 2005 was THB 674.50 million, consisting of contributions at a rate equivalent to 10% of employee salaries in the amount of THB 259.32 million, and additional amounts to match the Company’s obligation of THB 415.18 million.

Annual Report 2005

127


3.24 Staff Provident Fund The Company contributes to the provident fund at the rate of 9% for members having not more than 20 years of services and 10% for members having more than 20 years of services, representing amount of THB 834.74 million in fiscal year 2005. The Company’s provident fund is managed by TISCO Asset Management Company Limited and Krungthai Asset Management Pubic Company Limited which are approved by the Securities and Exchange Commission, Thailand (SEC). 3.25 Contingent Liabilities The Company has contingent liabilities, not presented in the financial statements, as follows: Unit : Million Baht The Company 2005

Letters of guarantee issued by banks

2004

11.06

16.71

Labour dispute cases

519.74

750.55

Damage claims cases

288.58

564.86

819.38

1,332.12

The Company as defendant in

Total 3.26 Disclosure of Financial Instruments The Company 3.26.1 Interest rate risk

Interest rate risk in financial statements arises from changes in market interest rates which have an effect on the Company’s operating results. The following tables show weighted average interest rates and the amount of financial liabilities. Unit : Million Baht 2005 Weighted Financial Liabilities

128

Floating Interest Rates

Fixed Interest Rates

Average

Less than

Over

Less than

Over

Interest Rate

1 year

1 year

1 year

1 year

Total

USD

6.16

820.95

5,127.65

7,535.26

12,983.07

26,466.93

JPY

0.56

1,737.61

13,860.72

1,035.46

15,093.06

31,726.85

EUR

2.33

940.79

11,610.29

334.72

4,085.71

16,971.51

THB

4.38

1,050.00

4,200.00

300.00

40,150.00

45,700.00

Thai Airways International Public Company Limited


Unit : Million Baht 2004 Weighted Financial Liabilities

Floating Interest Rates

Fixed Interest Rates

Average

Less than

Over

Less than

Over

Interest Rate

1 year

1 year

1 year

1 year

Total

USD

5.78

1,710.06

6,019.03

8,821.50

20,761.26

37,311.85

JPY

0.55

2,818.15

24,327.76

1,882.40

8,400.73

37,429.04

THB

3.80

1,050.00

5,250.00

300.00

10,450.00

17,050.00

The Company has entered into Interest Rate Swap (IRS) by converting JPY dominated loans from floating interest rate to fixing interest rate for Boeing 747-400 No.15 and 16 as well as EUR dominated loan for Airbus A340-500 No.1 and 2 and A340-600 No.1. At the end of fiscal year 2005, the loan portion fixed to floated interest rate increased to 70.7 : 29.3 including the obligation under operating lease. 3.26.2 Exchange Rate Risk Fluctuations in exchange rates affect on long-term liabilities and operating expenses denominated in foreign currencies. The hedging policy of the Company is to hold foreign currencies received from foreign currency revenues in proportion to foreign currency expenses. In addition, the Company holds surplus cash in major foreign currencies which are stable and uses in the Company’s operations in order to reduce foreign exchange risk. To reduce the Company’s risk and conform with its surplus cash, the Company has exercised the Cross Currency Swap (CCS) by converting the USD dominated loan with floated interest rate to EUR dominated loan with fixed interest rate for Boeing 777-300 No.3 and 4. In addition, the Company converted THB denominated debenture amount of THB 2,400 million to EUR dominated debenture with fixed interest rate which resulted in the increase in EUR dominated loans of the Company. As a result, the portion of EUR dominated loans was 18.4% of total loans including obligation under operation lease. Unit : Million Baht Foreign Currency Liabilities 2005 Currency

2004

Maturity within

Maturity over

Maturity within

Maturity over

1 year

1 year

1 year

1 year

USD

8,356.21

18,110.72

10,531.56

26,780.29

JPY

2,773.07

28,953.78

4,700.55

32,728.49

EUR

1,275.51

15,696.00

-

-

3.26.3 Fuel Price Risk Fuel price fluctuations depend on the supply and demand of fuel in the world market and the global political situation and have a direct effect on the Company’s operations. To hedge the expense/lost from fuel price fluctuation, the Company matchs foreign fuel supplies with the Company’s fuel demands by entering into an agreement with various supplies in many countries and always monitors the change in fuel price. Moreover, the Company’s hedging policy for this risk is to hedge maximum 50% of its utilized fuel quantity. In this fiscal year, the Company hedges this risk in the proportion of 22.45% per annum.

Annual Report 2005

129


3.26.4 Fair Value of financial instruments Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing, independent parties with the freedom to bargain. The following table presents year-end financial statement balances and an estimate of fair value of financial assets and liabilities as at September 30, 2005 and 2004. Unit : Million Baht The Company 2005

Balance

2004

Fair Value

Balance

Fair Value

20,618.16

20,618.16

323.46

323.46

Financial Assets Cash and cash equivalents

9,589.52

Current investments Other investments Trade account receivables

-

9,589.52 -

1,756.21

2,530.51

1,624.14

2,384.22

15,423.04

15,423.04

14,974.44

14,974.44

7,981.41

7,981.41

6,707.99

6,707.99

120,865.28

120,865.28

91,790.89

91,790.89

16,309.10

16,309.10

14,874.15

14,874.15

Financial Liabilities Trade account payables Loans Accrued expenses

The methods and assumptions that the Company uses to estimate the fair value of assets and liabilities are as follows: Cash and bank balances, fixed deposits due over 3 months, account payables, loans, and accrued expenses are stated at balance sheet amounts. Current investments are stated at market value. Other investments are stated at book value net of impairment. Investments in marketable equity securities are stated at market value. Trade account receivables are stated at book value net of allowances for doubtful accounts. 3.27 Events After the Balance Sheet Date According to the Resolution of Board of directors No.13/2548 held on October 12, 2005 approved the Company issuing and offering of THB debentures and/or other currencies not exceeding in the amount of THB 60 billion or equivalent within 5 years by using the exchange rate at the issuing and offering date in each period. 3.28 Contractual Obligations 3.28.1 Obligation to Purchase Aircraft The Company has a payment obligation to purchase aircraft amount of THB 104,902.45 million. 3.28.2 Leases Aircraft Obligations The Company has entered into operating leases with foreign companies for 12 aircraft with lease terms of 10-11 years. The aggregate lease payment obligations of the Company under the rest of the lease term 2-4 years amounted to USD 348.31 million or approximately THB 14,318.15 million (exchange rate USD 1 : THB 41.1075).

130

Thai Airways International Public Company Limited


3.28.3

Contractual Obligation and Memorandum Agreement in Suvarnabhumi Airport Project The Company as entered into a contractual and memorandum agreement in Suvarnabhumi Airport project for an

aggregate of THB 12,774.38 million. The Company recorded this item as work in progress amount of THB 9,456.72 million, leaving the payment obligation of THB 3,317.66 million. Unit : Million Baht Contractual

Work

Payment

Value

in progress

Obligation

Cargo and mail commercial service

3,102.57

2,092.36

1,010.21

Aircraft maintenance center

2,477.71

2,247.43

230.28

Catering

3,439.70

3,028.37

411.33

Ground support equipment service

1,523.79

1,090.48

433.31

Operation center

1,015.34

737.27

278.07

Ground customer service

561.73

35.08

526.65

Common activity

500.01

221.86

278.15

Information Technology

153.53

3.87

149.66

12,774.38

9,456.72

3,317.66

Total 3.29 Accounting Presentation in Financial Statement

The Company has reclassified some accounting items in financial statements for fiscal year 2004 to conform with the classification of accounting items in the current period which has no impact to net profit or shareholders’ equity as follows: 3.29.1 Cash and fixed deposits of the Company’s pension fund, formerly shown in cash and cash equivalents as well as fixed deposits due over 3 months, is presented in other current assets. 3.29.2 Fuel surcharge, formerly shown in insurance item, is included in fuel and oil item. 3.29.3 Expenses for financing of aircraft which used to present in lease of aircraft and spare parts are included in interest expenses item. 3.29.4 An obligation of the Company’s pension fund formerly shown in other expenses are presented in personnel expenses item.

Annual Report 2005

131


Board of Directors

132

Mr. Wanchai Sarathulthat

Mr. Suparut Kawatkul

Mr. Srisook Chandrangsu

Chairman Education - Master of Political Science Ramkhamhaeng University Experience - Deputy Permanent Secretary - Director General, Meteorological Department - Director General, Marine Department Present Positions - Permanent Secretary - Chairman of the Board of Directors, Port Authority of Thailand

Vice Chairman Education - M.Sc. (Econ.), Queen Mary College University of London, U.K. Experience - Director-General, Revenue Department - Director-General, Fiscal Policy Office, Ministry of Finance Present Positions - Permanent Secretary, Ministry of Finance - Chairman of the Board of Directors, Krung Thai Bank PLC - Director of the Board, PTT PLC

Director Education - Ph.D., Transportation Systems Planning, Ohio State University USA Experience - Director General, Department of Aviation - Director General, Department of Highways - Permanent Secretary, Ministry of Transport Present Positions - Chairman, New Bangkok International Airport Co., Ltd. - Chairman, Airports of Thailand PLC

Mr. Borwornsak Uwanno

Mr. Pichai Chunhavajira

Mr. Vichit Suraphongchai

Mr. Chartsiri Sophonpanich

Independent Director Education - Docteur de 3 e cycle (Droit Public Général) (mention trés bien) Université de Paris X (Nanterr) Experience - Secretary-General, King Prajadhipok’s Institute - Dean, the Faculty of Law, Chulalongkorn University Present Positions - Secretary-General to the Cabinet, The Secretariat of the Cabinet - Chairman of Princess Maha Chakri Sirindhorn Anthropology Centre - Chairman of the Audit Committee, Ministry of Justice

Director Education - Master of Business Administration (Finance), Indiana University of Pennsylvania, USA Experience - Acting President, Bangchak PLC - Director of Thaioil PLC - Deputy Governor, Finance Petroleum Authority of Thailand Present Positions - Senior Executive Vice President, Corporate Finance & Accounting, PTT Public Company Limited - Chairman, State Owned Enterprise Value Creation Committee (Super Holding) - Director, Metropolitan Electricity Authority

Director Education - Ph.D., Graduate School of Management, UCLA, USA Experience - Minister, Ministry of Transport and Communications - President, Bangkok Bank PLC - Chairman, Radanasin Bank PLC Present Positions - Director and Chairman, Executive Committee, Siam Commercial Bank PLC - Advisor, Bureau of the Crown Property - Director, Sky Asia Co., Ltd.

Director Education - Master Degree, Chemical Engineering Massachusetts Institute of Technology (MIT), USA Experience - Director, The Post Publishing PLC Present Positions - President, Bangkok Bank PLC - Chairman, Thai Bankers Association - Director, Thai Asset Management Corporation

Thai Airways International Public Company Limited


Mr. Somchainuk Engtrakul

Mr. Chai-Anan Samudavanija

Mr. Olarn Chaipravat

Mr. Tirachai Vutithum

Director Education - Bachelor Degree in Economics Upsala College, New Jersey, USA Experience - Permanent Secretary, Ministry of Finance - Director-General, The Customs Department, Ministry of Finance - Director-General, The Revenue Department, Ministry of Finance Present Positions - Vice Minister for Office of the Prime Minister - Chairman of the Board, Thai Military Bank PLC - Chairman of the Board, Dhipaya Insurance PLC

Independent Director Education - Ph.D., Political Science University of Wisconsin, USA Experience - President, The Royal Institute - Director, National Education Committee - Judge of the Constitutional Court Present Positions - Director, Vajiravudh College - Director, Krung Thai Bank PLC - Director, Bangchak Petroleum PLC

Independent Director Education - Ph.D., Economics, Massachusetts Institute of Technology (MIT), USA Experience - President and Chief Executive Officer, The Siam Commercial Bank PLC - Advisor to Management Board, The Siam Commercial Bank PLC Present Positions - Director of Stock Exchange of Thailand - Director, PTT PLC - Vice Chairman and Chairman of Audit, Shin Corporation PLC

Independent Director Education - Doctor of Philosophy Honorary Degree in Continuing Education Ramkhamhaeng University Experience - Deputy Bangkok Governor - Advisor to the Chairman, Airports Authority of Thailand PLC - Board Member, Aeronautical Radio of Thailand Ltd. Present Positions - Vice President, The Rattana Bundit University - Honour Academic Committee, Member of Ramkhamhaeng University Council - Advisor of the Committee on Communications of the Senate

Mr. Prasit Damrongchai

Pol. Gen. Nopadol Somboonsub

Mr. Vudhibhandhu Vichairatana

Mr. Kanok Abhiradee

Director Education - Ph.D., Political Science University of Oklahoma USA Experience - Permanent-Secretary, Office of Permanent Secretary, Office of the Prime Minister - Commissioner, the National Counter Corruption Commission Present Positions - Director, Krung Thai Bank PLC - Executive Director, Krung Thai Bank PLC - Director, Dhipaya Insurance PLC

Director Education - Master of Science (Criminology) California State University, USA Experience - Commissioner, Narcotics Suppression Bureau - Assistant Commissioner - General - Deputy Commissioner - General Present Positions - Director, Fraud & Cyber Crime True Corporation PLC

Director Education - M.A., (Economics) University of Arkansas, USA Experience - Deputy Directors, Bureau of the Budget, The Office of the Prime Minister - Assistant Directors, Bureau of the Budget, The Office of the Prime Minister Present Positions - Director, Bureau of the Budget, The Office of the Prime Minister - Member, Board of Directors, Provincial Electricity Authority - Member, Board of Directors, Airports of Thailand PLC - Member, Board of Directors, Thai Military Bank PLC

Director Education - Bachelor of Science, Marketing University of Louisville, Kentucky USA Experience - President, Osothsapha Group of Companies - Chief Executive Officer, ThaiTradeX Co., Ltd. Present Positions - President, Thai Airways International PLC - Chairman, Royal Orchid Hotel (Thailand) PLC - Chairman, Phuket Air Catering Co., Ltd.

Annual Report 2005

133


Management Team

134

Mr. Somchainuk Engtrakul

Mr. Kanok Abhiradee

Member of the Board of Directors Acting as President Education - Bachelor Degree in Economics Upsala College, New Jersey, USA Experience - Permanent Secretary, Ministry of Finance - Director-General, The Customs Department, Ministry of Finance - Director-General, The Revenue Department, Ministry of Finance

- President - Chairman, Royal Orchid Hotel (Thailand) PLC - Chairman, Phuket Air Catering Co., Ltd. Education - Bachelor of Science, Marketing University of Louisville, Kentucky USA Experience - President, Osothsapha Group of Companies - Chief Executive Officer, ThaiTradeX Co., Ltd.

Mr. Tummasak Chutiwong

ACM Narongsak Sangapong

Mr. Vasing Kittikul

Flg. Off. Veerachai Sripa

Executive Vice President, Corporate Secretariat Department Education - Master of Engineering Lamar University, USA Experience - Executive Vice President, Human Resources Development and Management Department - Vice President, Corporate Strategic Department

Executive Vice President, Special Project Department Education - Bachelor of Science Royal Thai Air Force Academy Experience - Adviser, National Defence Studies Institute - Deputy Chief of the Air Staff, Royal Thai Air Force

Executive Vice President, Commercial Department Education - Diploma, Business Administration Perth Technical College, Australia Experience - Executive Vice President, Customer Services Department - Vice President, Sales & Distribution

Executive Vice President, Operations Department Education - Bachelor of Science Royal Thai Air Force Academy Experience - Vice President, Aviation Personnel Development Department - Deputy Vice President, Aviation Personnel Development Department

Thai Airways International Public Company Limited


Mr. Kobchai Srivilas

Mr. Tasnai Sudasna

Mr. Prajak Jamrusmechoti

Mrs. Ngamnit Sombutpibool

Senior Executive Vice President, Corporate Planning and Information Technology Services Department Education - Master of Business Administration Kasetsart University Experience - Executive Vice President, Corporate Secretariat Department - Managing Director, Technical Department

Senior Executive Vice President, Corporate Support Department Education - Bachelor of Science Business Administration Pacific Western University USA Experience - Executive Vice President, Commercial Department - Acting Vice President, Inflight Services and Cabin Crew Development Department

Senior Executive Vice President, Business Development Department Education - Master of Business AdministrationManagement, North Texas State University, Texas, USA Experience - Executive Vice President, Special Project Department - Executive Vice President, Human Resources Development and Management Department

Executive Vice President, Finance and Accounting Department Education - Bachelor in Accountancy Chulalongkorn University Experience - Executive Vice President, Office of the Internal Audit - Vice President, Comptroller Department

Flg.Off. Chinawut Naressaenee

Mr. Kaweepan Raungpaka

Flg. Off. Norahuch Ployyai

Wg.Cdr. Supachai Limpisvasti

Executive Vice President, Customer Services Department Education - Master of Arts (Political Science) Public Administration Thammasat University Experience - Executive Vice President, Standards and General Administration Department - Senior Vice President, Standards and Safety Assurance Department

Executive Vice President, Human Resources Development and Management Department Education - Master of Business Administration Central Missouri State University USA Experience - Executive Vice President, Finance and Accounting Department - Vice President, Corporate Finance Department

Executive Vice President, Standards and General Administration Department Education - Bachelor of Science Royal Thai Air Force Academy Experience - Vice President, Special Project Department - Director, Operations Appraisal and Coordination Department

Managing Director, Technical Department Education - Doctor of Engineering (Structure Engineering and Mechanics) Asian Institute of Technology Experience - Vice President, Heavy Maintenance Department - Technical Representative, Aircraft type B737- 400, B777, A330

Annual Report 2005

135


Thai On-line Offices

ATHENS, GREECE 32 EL. VENIZELOU STR 166 75 GLYFADA ATHENS, GREECE

e-mail : anon.j@thaiairways.gr TKT/RSVN : (30-210) 9692-012 FAX : (30-210) 9602-686

AUCKLAND, NEW ZEALAND CITIBANK CENTRE BUILDING 23 CUSTOMS STREET EAST AUCKLAND, NEW ZEALAND

e-mail : aklaa@thaiair.co.nz TKT/RSVN : (64-9) 377-3886 FAX : (64-9) 379-8597

BRUNEI DARUSSALAM KOMPLEKS JALAN SULTAN e-mail : thaiair@brunet.bn 51-55 JALAN SULTAN, BANDAR SERI BEGAWAN BS 8811 TKT/RSVN : (673) 224-2991-3 NEGARA BRUNEI DARUSSALAM (673) 224-2871 BEIJING, THE PEOPLE’S REPUBLIC OF CHINA UNITS 303-4, LEVEL 3 OFFICE TOWER W3, ORIENTAL PLAZA, NO.1 EAST CHANG AN AVE, DONG CHENG DISTRICT, BEIJING, 100738 THE PEOPLE’S REPUBLIC OF CHINA BRISBANE, AUSTRALIA 145 EAGLE STREET, BRISBANE QUEENSLAND 4000, AUSTRALIA

CHENNAI, INDIA 31 HADDOWS ROAD, NUNGAMBAKKAM CHENNAI 600034, INDIA

e-mail TKT RSVN FAX

: : : :

viset.s@thaiairways.com.au (61-7) 3215-4777 (1300) 651-960 (61-7) 3215-4737

HO CHI MINH CITY, VIETNAM 65 NGUYEN DU STREET, DISTRICT 1 HO CHI MINH CITY, SOCIALIST REPUBLIC OF VIETNAM HONGKONG UNIT A, UNITED CENTRE 95 QUEENSWAY, HONG KONG

JAKARTA, INDONESIA 1st FLOOR, BDN BUILDING JL.M.H. THAMRIN NO.5 JAKARTA 10340, INDONESIA KARACHI, PAKISTAN TECHNOLOGY PARK SHAHRAH -E-FAISAL KARACHI 75520, PAKISTAN

e-mail : hanad@thaiairvn.com TKT/RSVN : (84-4) 826-7921 FAX : (84-4) 826-7394 e-mail : thaiairways.aa@hcm.vnn.vn TKT/RSVN : (84-8) 829-2809 FAX : (84-8) 822-3465 e-mail TKT FAX RSVN FAX

: : : : :

hkgaa@thaiairways.com.hk (852) 2876-6899 (852) 2735-8551 (852) 2876-6888 (852) 2865-6037

e-mail TKT RSVN FAX

: : : :

jktaatg@thaiairways.co.id (62-21) 230-2551 (62-21) 230-2552 (62-21) 3193-0792

e-mail : khiaatg@cyber.net.pk TKT/RSVN : (92-21) 778-8000 FAX : (92-21) 779-1936

e-mail : vutchennai@yahoo.com TKT/RSVN : (91-44) 5217-3311 FAX : (91-44) 5217-3388

KATHMANDU, NEPAL ANNA PURNA ARCADE DURBAR MARG, KATHMANDU, NEPAL

e-mail : ctuaa@thaiairways.com.cn TKT/RSVN : (86-28) 8678-1336 FAX : (86-28) 8678-1048

KOLKATA, INDIA CRESCENT TOWERS 229 A.J.C.BOSE ROAD KOLKATA 700020, INDIA

e-mail : tgsales@vsnl.com TKT/RSVN : (91-33) 2283-8865/8868 FAX : (91-33) 3982-7197

e-mail : thaiairwayscgp@hotmail.com TKT/RSVN : (880-31) 713-435/-36 FAX : (880-31) 713-436

COLOMBO, SRI LANKA COLOMBO HILTON RESIDENT 200 UNION PLACE COLOMBO 2, SRI LANKA

KUALA LUMPUR, MALAYSIA WISMA GOLDHILL 67 JALAN RAJA CHULAN 50200 KUALA LUMPUR, MALAYSIA

e-mail TKT FAX

e-mail : cmbaatg@mega.lk TKT/RSVN : (94-11) 2307-100-8 FAX : (94-11) 2307-109

COPENHAGEN, DENMARK RAADHUSPLADSEN 16 DK-1550, COPENHAGEN V DENMARK

KUNMING, THE PEOPLE’S REPUBLIC OF CHINA 2nd fl.,ATTACHED BULD. OF KUNMING JINJIANG HOTEL e-mail : kmgaa@thaiairways.com.cn 98 BEIJING ROAD, KUNMING 650011 TKT / HF : (86-871) 351-1515 YUNNAN, THE PEOPLE’S REPUBLIC OF CHINA FAX : (86-871) 316-7351

e-mail : kn@thai-airways.dk TKT/RSVN : (45-33) 750-120 FAX : (45-33) 750-121

DELHI, INDIA THE AMERICAN PLAZA, HOTEL PARKROYAL INTERCONTINENTAL NEHRU PLACE, NEW DELHI 110019, INDIA

LONDON, UNITED KINGDOM AND IRELAND 41 ALBERMARLE STREET LONDON, WIS 4BF UNITED KINGDOM AND IRELAND

e-mail : delaltg1@vsnl.net TKT/RSVN : (91-11) 5149-7777 FAX : (91-11) 5149-7788

CHENGDU, THE PEOPLE’S REPUBLIC OF CHINA SICHUAN HOTEL, 31 ZONG FU STREET CHENGDU, SICHUAN 610016 THE PEOPLE’S REPUBLIC OF CHINA CHITTAGONG, BANGLADESH FINLAY HOUSE, AGRABAD, CHITTAGONG BANGLADESH

DENPASAR, INDONESIA INNA GRAND BALI BEACH HOTEL SANUR, BALI, INDONESIA DHAKA, BANGLADESH DHAKA SHERATON HOTEL, MINTO ROAD DHAKA 1000, BANGLADESH DUBAI, U.A.E. NO.1 BU HALEEBA PLAZA ALMURAQABAT ROAD, DEIRA PO.BOX 13142 DUBAI, U.A.E. FRANKFURT, GERMANY ZEIL 127 60313 FRANKFURT, GERMANY

136

e-mail : bjsaatg@thaiair.cn TKT/RSVN : (86-10) 8515-1142/-46 FAX : (86-10) 8515-1134/-35

HANOI, VIETNAM 44 B LY THUONG KIET STREET, HANOI SOCIALIST REPUBLIC OF VIETNAM

e-mail : dpsadtg@thaiairways.co.id TKT/RSVN : (62-361) 288-141 FAX : (62-361) 288-063 e-mail : thaiair@bol-online.com TKT/RSVN : (880-2) 831-4711-18 FAX : (880-2) 832-2353 e-mail : dxbaatg@emirates.net.ae TKT/RSVN : (971-4) 268-1701 FAX : (971-4) 266-5498 e-mail : TKT/RSVN : (49-69) 92874-129 FAX : (49-69) 92874-222

FUKUOKA, JAPAN HINODE FUKUOKA BUILDING 1-12-1, TENJIN, CHUO-KU FUKUOKA, 810-0001 JAPAN

e-mail : waravan@thaiair.co.jp TKT/RSVN : (81-92) 734-6409 FAX : (81-92) 734-9480

GUANGZHOU, THE PEOPLE’S REPUBLIC OF CHINA G3, WEST WING, THE GARDEN HOTEL 368 HUANSHI DONG LU GUANGZHOU 510064 THE PEOPLE’S REPUBLIC OF CHINA

e-mail : thaican@pub.guangzhou.gd.cn TKT/RSVN : (86-20) 8365-2439, 2603 FAX : (86-20) 8365-2488

Thai Airways International Public Company Limited

LOS ANGELES, U.S.A. 222 NORTH SEPUL VEDA BLVD., SUITE 100 EL SEGUNDO, CA 90245, U.S.A. MADRID, SPAIN PRINCIPE DE VERGARA, 185 28002 MADRID, SPAIN

e-mail : ktmmgmt@thaiairways.com.np TKT/RSVN : (977-1) 422-1247, 422-3565 FAX : (977-1) 422-5084

: kulaatg@thaiairways.com.my : (60-3) 2031-1900 : (60-3) 2032-5805

e-mail TKT RSVN FAX

: : : :

ss@thaiairways.co.uk (44-20) 7491-7953 (44-870) 606-0911 (44-20) 7409-1463

e-mail RSVN FAX

: laxaatg@earthlink.net : (1-800) 426-5204 : (1-310) 322-8728

e-mail : madaa@thaiairways.es TKT/RSVN : (34-91) 782-0523 FAX : (34-91) 564-5620

MANILA, PHILIPPINES COUNTRY SPACE 1 BUILDING, SEN GIL J.PUYAT AVENUE e-mail : mnlaa@thaimnl.com.ph MAKATI CITY, PHILIPPINES TKT/RSVN : (63-2) 817-5445 FAX : (63-2) 893-5891 MELBOURNE, AUSTRALIA 250 COLLINS STREET MELBOURNE, VICTORIA 3000, AUSTRALIA MUMBAI, INDIA MAKER CHAMBERS - IV, GROUND FLOOR NARIMAN POINT, MUMBAI 400021, INDIA

e-mail : jesada@thaiairways.com.au TKT/RSVN : (61-3) 8662-2266 FAX : (61-3) 9650-7103 e-mail : bomadtg01@vsnl.net TKT/RSVN : (91-22) 5637-3737 FAX : (91-22) 5637-3738

NAGOYA, JAPAN THAI AIRWAYS INT’L PCL CENTRAL JAPAN 3-6-29 NISHIKI, NAKA-KU NAGOYA 460-0003, JAPAN

e-mail : ngoaatg@thaiair.co.jp TKT/RSVN : (81-52) 963-8585 FAX : (81-52) 963-8588

NEW YORK, U.S.A. LINCOLN BUILDING 60 EAST 42nd STREET SUITE 3120 NEW YORK N.Y. 10165, U.S.A.

e-mail : nycadtg@yahoo.com TKT/RSVN : (212) 949-8424 ext.194 FAX : (212) 286-0082


OSAKA, JAPAN SUMITOMO SEIMEI YODOYABASHI BUILDING 1-21 KITAHAMA, 4-CHOME CHOU-KU OSAKA 541-0041, JAPAN PARIS, FRANCE 23 AVENUE DES CHAMPS ELYSEES 75008 PARIS, FRANCE PENANG, MALAYSIA WISMA CENTRAL 41 MACALISTER ROAD 10400 PENANG, MALAYSIA PERTH, AUSTRALIA LEVEL 30, QV1 BUILDING 250 ST GEORGES TERRACE PERTH, WA 6000, AUSTRALIA PHNOM PENH, CAMBODIA 294 MAO TSE TUNG, PHNOM PENH KINGDOM OF CAMBODIA ROME, ITALY 50 VIA BARBERINI 00187 ROME, ITALY

SEOUL, KOREA SHIN DONG AH FIRE & MARINE INSURANCE BLDG, TAEPYUNGNO 2-GA, CHUNG JUNG-GU, SEOUL, KOREA SHANGHAI, THE PEOPLE’S REPUBLIC OF CHINA UNIT 105 SHANGHAI KERRY CENTRE, 1515 NAN JING ROAD (WEST), SHANGHAI 200040 THE PEOPLE’S REPUBLIC OF CHINA SINGAPORE 100 CECIL STREET THE GLOBE 069532 SINGAPORE STOCKHOLM, SWEDEN DROTTNINGGATAN 33 , BOX 1118 STOCKHOLM, SWEDEN SYDNEY, AUSTRALIA 75-77 PITT STREET, SYDNEY NEW SOUTH WALES 2000 AUSTRALIA

TAIPEI, TAIWAN CHIEN KUO NORTH ROAD, SEC.1 TAIPEI, TAIWAN TOKYO, JAPAN 1-5-1, YURAKU-CHO, CHIYODA-KU TOKYO 100-0006, JAPAN VIENTIANE, LAOS M&N BUILDING ,LUANGPRABANG ROAD KHOUNTA THONG, VIENTIANE LAO PEOPLE’S DEMOCRATIC REPUBLIC XIAMEN, THE PEOPLE’S REPUBLIC OF CHINA INTERNATIONAL PLAZA L UJIANG ROAD, XIAMEN THE PEOPLE’S REPUBLIC OF CHINA YANGON, UNION OF MYANMAR 0101 SAKURA TOWER 339 BOGYOKE AUNG SAN STREET KYAUKTADA 11182 YANGON, MYANMAR

e-mail : osaaa@thaiair.co.jp TKT/RSVN : (81-06) 6202-5161 FAX : (81-06) 6202-5453 e-mail : paraa@thaiairways.fr TKT/RSVN : (33-1) 4420-7080 FAX : (33-1) 4420-7037 e-mail TKT RSVN FAX

: : : :

thaipen@po.jaring.my (007-604) 226-7000 (007-604) 226-6000 (007-604) 226-6821, 226-1857

e-mail : surariddhi.b@thaiairways.com.au TKT/RSVN : (61-8) 9488-9201 FAX : (61-8) 9488-9261 e-mail : thaiair@online.com.kh TKT/RSVN : (855-23) 214-359 FAX : (855-23) 214-369 e-mail TKT RSVN FAX

: : : :

management@thaiair.it (39-06) 4781-3329 (39-06) 4781-3304 (39-06) 474-6449

e-mail TKT RSVN FAX

: : : :

selaa@thaiair.co.kr (82-2) 3707-0133 (82-2) 3707-0011 (82-2) 755-5251*

e-mail : shaadtg@thaiairways.com.cn TKT/RSVN : (86-21) 5298-5555 FAX : (86-21) 5298-6166 e-mail TKT RSVN FAX

: : : :

sinaa@thaiairways.com.sg (65) 6224-2024 (65) 6224-9977 (65) 6223-9005

ZURICH, SWITZERLAND BAHNHOF STRASSE 67/SIHLSTRSSE 1 8023 ZURICH, SWITZERLAND

BANGKOK, THAILAND HEAD OFFICE 89 VIBHAVADI RANGSIT ROAD BANGKOK 10900 SILOM OFFICE 485 SILOM ROAD BANGKOK 10500

LARNLUANG OFFICE 6 LANLUANG ROAD BANGKOK 10110

AIRPORT OFFICE - BANGKOK INTERNATIONAL AIRPORT VIBHAVADI RANGSIT ROAD BANGKOK 10210 - DOMESTIC AIRPORT VIBHAVADI RANGSIT ROAD BANGKOK 10210 CHIANGMAI, THAILAND 240 PRAPOKKLAO ROAD, AMPHOE MUEANG, CHIANGMAI 52000 THAILAND CHIANGRAI, THAILAND 870 PHAHOLYOTHIN ROAD TUMBOL WIENG AMPHOE MUEANG CHIANG RAI 57000, THAILAND PHITSANULOK, THAILAND 209/26-28 BOROMTRILOKNART ROAD PHISANULOK 65000, THAILAND

e-mail : bundit@thaiairway.se TKT/RSVN : (46-8) 5988-3600 FAX : (46-8) 5988-3690

HAT YAI, THAILAND NIPAT UTHIT 1 ROAD HAT YAI, SONGKHLA 90110, THAILAND

e-mail TKT FAX RSVN FAX

PHUKET, THAILAND 78 RANONG ROAD, AMPHOE MUEANG, PHUKET 83000 THAILAND

: : : : :

sydaa@thaiairways.com.au (61-2) 9844-0929 (61-2) 9844-0936 (61-2) 9844-0999 (61-2) 9251-1106

e-mail : administration@thaiair.ch TKT/RSVN : (41-1) 215-6500 FAX : (41-1) 212-3408

TEL FAX

: 02 545-3690-92 : 02 545-3832

OPERATOR 02 232-8000 TEL 02 232-8197, 02 232-8294 TEL : 02 232-8294 FAX : 02 233-1465 02 237-4114 TKT FAX RSVN FAX

: : : :

02 288-7000 02 280-1748 02 628-2000 02 628-0111

TEL FAX TEL FAX

: : : :

02 535-2755 (TERMINAL 1) 02 535-4768 02 535-6998 (TERMINAL 2) 02 535-4266

TEL FAX

: 02 535-3290 : 02 535-3182

e-mail TKT RSVN FAX

: : : :

e-mail TEL(A/P)

: ceiswtg@yahoo.com : (053) 711-179, 715-207 : (053) 713-663

e-mail TEL FAX

: nuthit.p@thaiairways.com : (055) 242-971 : (055) 247-863

e-mail TKT FAX

: hdysdtg@yahoo.com : (074) 233-433 : (074) 233-114

e-mail TKT RSVN FAX

: kanlayapha.p@thaiairways.com : (076) 212-400 (076) 211-195 : (076) 258-233, 216-776

tanawat.h@thaiairways.com (053) 920-921 (053) 920-999 (053) 920-990

e-mail : tpeaatg@ms29.hinet.net TKT/RSVN : (886) 2509-6800 FAX : (886) 2508-4910

KRABI, THAILAND 39 TUNG FAH ROAD, AMPHOE MUEANG, KRABI 81000 THAILAND

e-mail TEL FAX

: kbvsd@yahoo.com : (075) 622-439 : (075) 622-443

e-mail : tyoaatg@thaiair.co.jp TKT/RSVN : (81-3) 3503-3311 FAX : (81-3) 3503-3323

PATTAYA, THAILAND DUSIT RESORT PATTAYA HOTEL 240/2 PATTAYA BEACH ROAD CHOLBURI 20130, THAILAND

e-mail TEL FAX

: napakris@hotmail.com : (038) 420-994-97 : (038) 420-998

KHONKAEN, THAILAND HOTEL SOFITEL RAJA ORCHID KHONKAEN 9/9 PRACHASAMRAN ROAD, AMPHOE MUEANG, KHONKAEN 40000

e-mail TEL FAX

: vsingtoroj@yahoo.com : (043) 227-701-04 : (043) 227-708

e-mail TEL FAX

: ubpsd@yahoo.com : (045) 313-340-2 : (045) 256-069

e-mail : vteaa@thaiairwaylao.com (AREA CODE) : (007-856-21) TKT/RSVN : 222-527-9, 251-041 FAX : 216-143, 219-563 e-mail : thaixm@public.xm.fj.cn TKT/RSVN : (86-592) 226-1686 FAX : (86-592) 226-1678 e-mail : sales@thaiairways.com.mm TKT/RSVN : (95-1) 255-499 FAX : (95-1) 255-490

UBON RATCHATHANI, THAILAND 364 CHAYANGGOOL ROAD, AMPHOE MUEANG UBON RATCHATHANI 34000, THAILAND

THAI : Annual Report 2005  

Annual Report 2005

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