Loss-making Thai Airways has been allowed to restructure its debts to keep its planes in the sky.
The struggling airline had previously asked for a government bail-out via a 58.1bn baht ($1.81bn, £1.48bn) loan.
Instead, Thai officials told the airline to come up with a restructuring plan to avoid going bankrupt.
The global airline industry is facing a severe financial crisis due to coronavirus travel restrictions with a growing list of casualties.
Thai Airways was under financial pressure even before the coronavirus outbreak caused passenger numbers to plummet. In 2019, it reported losses of 12bn baht.
But it has strongly denied rumours that it was looking to file for bankruptcy. In a statement on its website, Thai Airways said: “it has no intention to file for bankruptcy, responding to rumours appeared in the news and online”.
The airline is 51% owned by the Thai government and overseen by its State Enterprise Policy Committee (SEPC).
After a cabinet meeting on Tuesday, Thailand’s Prime Minister, Prayuth Chan-ocha, said: “The government has reviewed all dimensions… we have decided to petition for restructuring and not let Thai Airways go bankrupt. The airline will continue to operate.”
The previous rescue package put forward by the airline involved a government guaranteed loan backed by the finance ministry.
Thai Airways has around 80 planes and employs 22,000 people. It said this week it would not resume international flights until at least 30 June.
The International Air Transport Association has said air travel is not expected to return to normal until 2023, putting further pressure on airlines globally.
Avianca, Colombia’s privately owned national flag carrier, filed for Chapter 11 bankruptcy in the US earlier this month, while Virgin Australia, the second-biggest airline in Australia, entered administration in April after it failed to secure a government bailout.