Aer Rianta packs bags as Bangkok venture sours

AS Aer Rianta celebrates its 50th anniversary this month in upbeat mood, it is still absorbing a shock lesson in Thailand that could serve as a warning for any company thinking of entering the unpredictable emerging markets of Asia.

Staff in Thailand have cleared their desks after Aer Rianta International (ARI) was abruptly served notice in midMay that its supposedly watertight contract to run Bangkok's prestigious downtown duty free store at the World Trade Centre was to be terminated by the Thai government. Aer Rianta moves out of Bangkok this weekend.

The move, which shocked industry insiders, can be understood only in the context of the volatile nature of Thai business and politics, currently reeling from the effects of the worst economic downturn in a decade.

Two years ago, ARI signed a five year contract to manage the duty free shop with former prime minister Mr ChuanLeekpai's Democrat Party led government, which had committed itself to improving facilities for tourism, Thailand's largest foreign exchange earner.

"It was a greenfield situation, we had the total backing of the government and the relevant departments. It was a very interesting prospect," said Mr Frank Donovan, head of ARI's Asia arm.

The Democrats were voted in after bloody prodemocracy demonstrations in May 1992, when Bangkok's middle classes took to the streets to protest against a military coup and against widespread corruption.

But that government fell, followed by another short lived administration and late last year another coalition took power led by the Prime Minister, Mr Chavalit Yongchaiyudh, and elected mainly on votes from the poor rural countryside in an election tainted, like all Thai elections in recent years, by wide spread allegations of vote buying.

Mr Yongchaiyudh's government, as well as presiding over the current economic crisis which is stunning Thais used to more than a decade of runaway growth, has been the target of numerous corruption allegations since it took office in December.

Although there have been attempts by some groups to clean up business and politics, patronage and bribery are still regarded as relatively normal, if increasingly resented.

The man who axed ARI, Mr Piyanat Watcharaporn, Minister in charge of tourism and other portfolios, has since become embroiled in another controversy after he fired the head of a government television station ahead of a potentially lucrative privatisation plan.

ARI initially learned that it was to be axed only via rumours in the Thai press, which quoted the Minister as making allegations against the Irish company. Among the charges to surface in the Thai press were that the store wasn't making money, that profits were being creamed off and allegations of Bangkok drug parties.

Mr Donovan dismissed the allegations as nonsense. Reporters for the English language press, which has a reputation for more stringent reporting standards than its Thai language counterparts, said the Minister was playing politics ARI also countered that the prestige store at the huge World Trade Centre shopping complex had been making a trading profit since October 1996, and that its success had been slowed by lack of co operation from the government on earlier agreements on customs, promotion and capital issues.

Although anyone doing business in parts of Asia knows that it is sound policy to expect the unexpected, the contrast between what was agreed two years ago in Thailand and what has since transpired remains hard for ARI management to stomach.

There may be a certain satisfaction, though, in ARI's subsequently winning a prize contract at the new Hong Kong airport, where ARI, ironically, will replace the company which Mr Watcharaporn handpicked, without a bid, to take over from ARI in Bangkok.

King Power, a Hong Kong/Thai operation, will lose its liquor and tobacco concessions at the present Hong Kong airport when the new Chek Lap Kok airport opens next year. Instead, Aer Rianta will run the 12 largest liquor and tobacco operations in what is due to be the world's largest airport.

AER Rianta has been in tricky situations before, notably in Moscow and the Middle East, so it is adopting a pragmatic approach to the recent events in Thailand. Like the political and business sectors, the Thai legal system is also widely regarded as tainted by corruption, and it is unlikely that outsiders ARI would be wise to attempt a legal challenge to Mr Watcharaporn's decision.

ARI will simply have to chalk up to experience what, as long as it doesn't come at too high a financial cost, could end up being just another valuable lesson on dealing in unpredictable, but potentially lucrative markets.

Aer Rianta's semi state status carries advantages and disadvantages in business dealings abroad. When bidding for contracts, it has a credibility that can give it an edge over private competitors. But when it comes to actually doing business, ARI has to "play straight" in situations, common in Asia, in which demands for tea money do not mean contributions to the office kitty.

Nevertheless, the company intends to continue its push into the world's fastest growing region. As it prepares to take up the prize position in Hong Kong, ARI also maintains, a strong presence in Beijing and it is bidding for a role in Malaysia's new Kuala Lumpur airport, due to open next year.

Asia's potential is too attractive to ignore, but it is still no place for the fainthearted. As one Western Bangkok based businessman said recently: "In this part of the world, except for Singapore and Hong Kong, there are great opportunities, but you do well to remember that contracts are often regarded simply as the basis for future negotiation."