Bangkok--23 Apr--TRIS Rating
TRIS Rating Co., Ltd. has assigned a rating of “A+” to the senior debentures worth Bt1,500 million (THAI243A) of Thai Airways International PLC (THAI). At the same time, TRIS Rating has affirmed the company rating of THAI and the ratings of its existing senior debentures at “A+” with “stable” outlook. The ratings reflect THAI’s position as the leading carrier flying in international air routes in and out of Thailand and the benefits derived as a member of Star Alliance, the largest airline alliance in the world. However, these strengths are partially offset by its relatively high leverage and exposure to fuel price volatility, foreign exchange risk, and event risk, e.g., epidemics, natural disasters, and political unrest. In addition, intense competition from both premium carriers and low-cost carriers (LCCs) will continue to constrain the passenger yield (revenue per passenger-kilometer) in the short to medium term. The “stable” outlook is based on the expectation that THAI will maintain its dominant position in international routes. The ratings take into consideration the intrinsic benefit of having the government as a major shareholder. Hence, a privatization could lower THAI's credit ratings by a certain level. In addition, THAI’s ability to improve profits by reducing operating costs and fuel costs is crucial to maintain its credit quality, especially as the company is making huge investments.
TRIS Rating reported that THAI’s ratings are enhanced from the company’s stand-alone credit profile. The enhancement reflects the implicit support from the government due to THAI’s status as a state enterprise and the flag carrier of Thailand. Thus, the ratings will be lowered if the government shareholding falls below 50%. Currently, the Ministry of Finance (MOF) remains the major shareholder with a 51% shareholding while the Government Savings Bank (GSB) holds 2.4% of THAI’s shares. The 15.1% of THAI’s shares held by the Vayupak Fund is considered as a private investment, although the Vayupak Fund was established by the MOF.
TRIS Rating said, THAI is one of the largest airlines in Asia. At the end of March 2012, its international network comprised 59 international destinations with 563 flights per week. Capacity, measured as available seat kilometers (ASK), increased by 3.9% year-on-year (y-o-y) in 2011 after the company added nine new aircraft to its fleet. THAI has a strong market position in international routes. In 2011, THAI had a market share of around 38.9% of international passenger traffic through the Thai international airports.
For the domestic market, overall air traffic of THAI has increased substantially since LCCs were introduced in 2003. The total market grew from 7.2 million passengers in 2003 to 14.3 million passengers in 2011. However, despite the rise in the size of the market, the domestic market share of THAI has declined steadily, falling from 85% in 2003 to around 37% in 2011. The domestic market contributes around 11% of its revenues. Due to its relatively high operating costs compared with the LCCs, THAI had a clear strategy to improve profitability by reducing flights on some uneconomical domestic routes and letting its affiliated company, “Nok Air”, service these routes. In addition, the company established a new business unit, “Thai Smile”, which will operate a new light premium airline, targeting mid-range customers. Thai Smile was created to gain market share in the LCC segment in both the domestic and regional markets. In 2011, THAI’s cabin factor was 70.4%, down from 73.6% in 2010. The freight load factor also declined, slipping from 69.4% in 2010 to 65.4% in 2011.
In 2011, THAI’s operating performance was adversely affected from significant increases in jet fuel prices and the severe flood in late 2011. In addition, fierce competition limited the fuel surcharge adjustment. Adjusted operating income as a percentage of sales, therefore, declined from 16.7% in 2010 to 9.7% in 2011. The low margin, if it persisted, could affect the ratings. The adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) interest coverage ratio dropped from 6.2 times in 2010 to 3.6 times in 2011. The adjusted funds from operations (FFOs) to total debt ratio also fell, tumbling from 19.1% in 2010 to 10.9% in 2011. The adjusted debt to capitalization ratio slightly increased last year, rising from 66.1% in 2010 to 69.5% in 2011. Financial leverage is expected to increase and remain high in the medium term, considering the sizable capital expenditures required to acquire new aircraft. However, the new aircraft will benefit the company because they will have higher efficiency, consume less fuel, and require less maintenance, said TRIS Rating.
Thai Airways International PLC (THAI)
Company Rating: Affirmed at A+
Issue Ratings:
THAI12NA: Bt4,500 million senior debentures due 2012 Affirmed at A+
THAI13OA: Bt2,556.79 million senior debentures due 2013 Affirmed at A+
THAI14OA: Bt3,000 million senior debentures due 2014 Affirmed at A+
THAI155A: Bt3,000 million senior debentures due 2015 Affirmed at A+
THAI165A: Bt2,000 million senior debentures due 2016 Affirmed at A+
THAI185A: Bt1,555 million senior debentures due 2018 Affirmed at A+
THAI185B: Bt1,445 million senior debentures due 2018 Affirmed at A+
THAI215A: Bt833 million senior debentures due 2021 Affirmed at A+
THAI215B: Bt2,167 million senior debentures due 2021 Affirmed at A+
THAI16DA: Bt2,000 million senior debentures due 2016 Affirmed at A+
THAI192A: Bt1,000 million senior debentures due 2019 Affirmed at A+
THAI222A: Bt2,000 million senior debentures due 2022 Affirmed at A+
THAI243A: Bt1,500 million senior debentures due 2024 A+
Rating Outlook: Stable