Bangkok--27 Jun--TRIS Rating TRIS Rating Co., Ltd. has affirmed the company rating of Aeronautical Radio of Thailand Ltd. (AEROTHAI) at “AA” with “stable” outlook. The rating reflects the strategic importance of air navigation services to the country, the company’s status as the only air navigation control provider in Thailand, and its capable and experienced management team. The rating also reflects increasing demand for air transportation in the Asia-Pacific region in the medium to long term, which is expected to improve AEROTHAI’s cash generation ability in the future. In addition, implicit support from the government is a major factor enhancing the company’s credit profile. These strengths are partially offset by an increasing and substantial debt burden that will be required to fund AEROTHAI’s investment projects. These projects will further strengthen the company’s operating capacity in the future. The “stable” outlook is based on the expectation of continued support from the government because of the company’s status as the nation’s sole air traffic control operator and its strong operating profile. AEROTHAI’s outlook and rating will be revised after the company is able to improve its financial profile. TRIS Rating reported that AEROTHAI is a state enterprise, 91% owned by the government; the remaining 9% is held by various airlines. The Thai government, as a contracting state of the International Civil Aviation Organization (ICAO), is responsible for providing air transportation safety over Thailand. AEROTHAI has been appointed by the government to operate the country’s air traffic control service including the systems and technologies for air navigation service, which are critical functions for air transportation safety. Currently, AEROTHAI is the sole provider of air navigation services in Thailand. The company’s area of responsibility is the Bangkok Flight Information Region (BKK FIR). Its operations comply with the ICAO standards and recommended practices. AEROTHAI’s operation is heavily influenced by government policy and the company’s investments are approved by both the Ministry of Transport and the Thai Cabinet. All budgets are approved by the company’s board of directors, most of whom are representatives of the Ministry of Finance, the Ministry of Transport, and the Royal Thai Air Force. The government appoints nine of the eleven board members, while two members are representatives of airline shareholders. The company’s air service charges must be approved by the Civil Aviation Board.TRIS Rating said, AEROTHAI incurred substantial amounts of debt to finance capital expenditures during 2004-2006, as the company constructed a new air traffic control complex, air traffic control system, and related technology such as a navigational aid system, a surveillance system and an air traffic communication system for Suvarnabhumi International Airport. The total investment cost for facilities at the new airport was approximately Bt3,110 million. Therefore, the company’s total debt to capitalization ratio increased from 74.0% in 2005 to 80.3% in 2006. The leverage ratio is expected to remain high over the next few years as the company has planned substantial investments to install new systems and equipment to enhance its capabilities as a regional air navigation control provider. Funds from operations (FFO) declined substantially from Bt398 million in 2005 to Bt16 million in 2006 because of increased operating costs after Suvarnabhumi InternationalAirport began full operations. As a result, AEROTHAI’s FFO to total debt ratio weakened from 13.7% in 2005 to 0.4% in 2006. Although AEROTHAI’s financial status will weaken in the short term, the company maintains a strong credit profile because it will continue to receive strong government support as its role is critical for the country.