* Forming plan to end state control
* President sees higher Q4 revenue, passenger yields
* Plans baht-denominated long-term bond issue
* To buy 26 new wide-body, 11 new narrow-body aircraft
(Adds government reaction, details throughout)
By Jason Szep and Arada Kultawanich
BANGKOK, Nov 26 (Reuters) - Thai Airways International Plc (THAI.BK) is forming a plan to end state control and pave the way for an aggressive regional expansion that includes a new mid-tier airline and a revamped fleet, its president said on Friday.
The flag carrier, facing increased regional competition, is negotiating with local and foreign creditors to remove debt covenants to allow the Ministry of Finance to cut its stake to 49.9 percent from 51 percent, he said.
"We now comply by all the laws related to private companies and yet we also have to abide by certain government regulations and that slows up the management enormously," Piyasvasti Amranand told Reuters in an interview.
"This sort of problem is faced by airlines which are state enterprises in less developed countries," he said. "If we are not a state enterprise then we are free of everything."
The plan is part of an aggressive turnaround bid by Thai Airways after years of losing market share in a region where swelling middle classes, fast economic growth and liberalising air policies point to future earnings growth.
Piyasvasti, whose appointment in October 2009 has shaken up the half-century-old airline, said he expects all debt covenants to be removed by February, after which the Ministry of Finance could transfer two percent of its shares to the Vayupak state mutual fund, freeing the carrier from direct state control.
"We are ready to consider that," Somchai Sujjapongse, director general of the State Enterprise Policy Office at the Finance Ministry, told Reuters. "If the airline is not a state enterprise, it will be more flexible and better able to compete with the private sector."
All debt covenants with Thai banks and one with a foreign bank have been removed, leaving just three loans totalling 20 billion baht ($665 million) remaining with foreign banks, he said, although those do not need to be repaid in full.
"The selldown is up to the Ministry of Finance but they cannot do it unless we change the covenants," he said, adding that another barrier could be the airline's strong unions.
"Employees could be terrified of losing state-enterprise status because they think they could lose certain protections, but I think we have an answer to that. You can easily sign contracts. We don't want to reduce privileges," he said.
Resistance by unions to the end of state-enterprise status could cause short-term problems for Thai Airways, said Varayu Wattanasiri, an analyst at Country Group Securities.
"Although this will help the airline's efficiency in term of management, it will also create pressure on staff," he said. "This might have a short-term negative impact."
Thai Air's stock, just added to the MSCI index, ended up 1.05 percent, erasing some earlier gains on concern over the potential short-term negative impact if unions resist efforts to end of state control. The main index .SETI fell 0.47 percent.
NEW MID-TIER AIRLINE
Piyasvasti, a 57 year-old former energy minister with a penchant for speaking his mind, has wrestled with state bureaucracy since announcing plans for a budget airline operated with Singapore's Tiger Airways Holdings Ltd (TAHL.SI) in August.
The launch of Thai Tiger Airways has been delayed from March to May pending funding approval for a 98.9 million baht ($3.31 million) investment from the Transport Ministry and the National Economic and Social Development Board.
After Thai Tiger starts up from Bangkok, Thai Airways aims to launch another wholly-owned mid-tier airline, he said, modelled broadly on Singapore Airlines' (SIAL.SI) SilkAir. "Thai Light" was one idea for a name but the branding is a work in progress.
"Thai Light is simply one of the names we have been talking about," he said. "It doesn't have to be a new airline. It is part of Thai Airways for capturing the middle part of the market which we have neglected. Competitors are filling in that gap."
Piyasvasti also wants to acquire 26 new wide-body aircraft and 11 narrow-body planes by 2017 under a plan approved by the carrier's board on Saturday, he said.
Airbus, a unit of European aerospace and defence group EADS EAD.PA, has proposed A350 wide-body jets while Boeing Co (BA.N) has proposed its 787 Dreamliner.
"Let them compete," he said. He said Thai Airways aimed to have a 15 billion baht ($500 million) revolving credit line and was looking to issue long-term debentures in Thai baht following a review of its credit rating by local agency TRIS Rating Co Ltd.
"The management will be interviewed by TRIS for the whole of this afternoon for the new credit rating, and then after that we can begin the process for issuing new debentures and that will be early next year," he said.
He said revenue per kilometre, or RPKs, in the fourth quarter should be higher than last year and passenger yields are up.
"So far so good in the fourth quarter. The quarter should be reasonable. But there is a concern that low-cost airlines are taking away part of the market. That's why Thai Tiger Airways really needs to come in quickly," he said.
(Additional reporting by Kitiphong Thaichareon; Editing by Martin Petty)
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