A grim reality behind the stellar rankings? Turkish airlines allegedly facing serious default crisis
Turkey's national flagship carrier Turkish Airlines (THY) is facing a serious default crisis in the wake of surging debts, Turkish media outlets claimed on Tuesday, citing the company's latest balance sheet data available.
THY had $7.74 billion in short-term debts in the first three months of this year while the company's current asset size was $5.3 billion, revealing $2.4 billion in capital deficit at the time, the Taraf daily reported on Tuesday.
The daily referred to “abuse” within THY as a reason behind its financial troubles. The Taraf report further claimed that the carrier depended on bank loans to pay salaries to its staff. The carrier had earlier released its first quarter balance sheets, which showed that the amount of money THY borrowed to cover the capital deficit has surged. THY's financing expense, or the money it paid in interest on bank loans, hit TL 147.1 million in the first quarter of this year, while its net financial losses were TL 226 million in the same period.
Market experts also stressed on Tuesday that a lack of transparency in THY operations, along with increased political control, has dented the carrier's image while negatively affecting its financial decisions.
The government has already tightened its grip on the company, unilaterally appointing members to THY's board. Prime Minister Recep Tayyip Erdoğan earlier picked one of his lawyers, Arzu Akalın, as a board member. Following a legal regulation made by the ruling Justice and Development Party (AK Party) last year, it became much more difficult for the opposition parties in Parliament and the public to monitor THY among other public institutions. A change last year to a law regulating the Court of Accounts (Sayıştay), which audits the finances of public bodies, concluded that audit reports on public institutions will not be sent to Parliament.
Another criticism of the THY board is that the company is forced to make large purchases that are difficult to afford in the long term. In June, THY ordered 15 Boeing 737 MAX 8s, valued at a total of $1.6 billion, according to list prices. That followed the largest Boeing order in the airline's history in May of last year, when THY ordered 50 737 MAXs and 20 Next Generation 737s. The company said on Tuesday it would also purchase ultra-wide-body aircraft, with a decision likely to be made on either the A380-800 or the B747-8 before the end of the year.
First quarter data revealed THY's profits per mile of flight have also declined. The carrier currently flies to more country destinations than any other company in the world.
Observers said THY's financial balances have been hurt by the government allegedly forcing the carrier to allocate large amounts for advertisements on pro-government television channels. THY was the third public-controlled firm to allocate the largest advertising budget to pro-government TV stations in the first half of this year, according to AdEx data from the Nielsen Company. THY ads were placed on nine pro-government television channels.