TRIS Rating Co., Ltd. has upgraded the company rating of Thai Airways International PLC (THAI) and the ratings of its senior debentures to “A+”from “A”. At the same time, TRIS Rating has assigned the rating of “A+” to THAI’s proposed issue of up to Bt8,000 million in senior debentures. The outlook is “stable”. The upgrades reflect an improving financial profile after a successful new share offering in September 2010, coupled with a recovery of its operating performance following the global economic recovery, and the benefits from cost-cutting schemes. The ratings also reflect THAI’s leading position in international air routes in and out of Thailand. However, these strengths are partially offset by its relatively high leverage and exposures to fuel price volatility, foreign exchange risk, and event risk, e.g., epidemics, terrorism, and political unrest. In addition, intense competition from both premium and low cost carriers (LCCs) will continue to constrain the passenger yield (revenue per passenger-kilometer) in the short- to medium- term. The ratings are enhanced from THAI’s stand-alone credit profile. The enhancement reflects the implied 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 50.0%.
The “stable” outlook is based on the expectation that THAI will maintain its dominant position in international flights from Thailand. The company’s operating performance and its capital structure should not significantly deteriorate from the current level. The outlook has already taken into consideration the planned capital expenditures of around Bt140,000 million during 2010-2014. In addition, the outlook is based on the expectation that the governmental support will continue, particularly during adverse situations, since the government is the major shareholder.
TRIS Rating reported that THAI, as a state enterprise, receives both direct and indirect support from its major shareholder, the Ministry of Finance. Currently, the Ministry of Finance remains a major shareholder with a 51.0% shareholding while the Government Savings Bank holds 2.4% of THAI’s shares. The Vayupak Fund, an investment fund established by the Ministry of Finance to invest in listed state enterprises, also has a considerable stake in THAI (16.3%). Now THAI is one of the largest airlines in Asia. At the end of March 2010, its international network comprised 59 international destinations with 535 flights per week. Capacity, measured as available seat kilometers (ASK), in the first nine months of 2010 increased by 5.7% year-on-year (y-o-y). The capacity expansion was in response to the revival of air traffic demand as a result of the global economic recovery. THAI has enjoyed a strong market position in international routes. At the end of 2009, THAI had a market share of around 36.6% of international passenger traffic through the Thai international airports.
TRIS Rating said, for the domestic market, overall air traffic has increased substantially since LCCs were introduced in 2003. The total market grew from 7.2 million passengers in 2003 to around 15-16 million passengers in 2008-2009. However, the domestic market share of THAI declined steadily from 84% in 2003 to around 48% in 2008 before improving to 52% in 2009. The domestic market contributes around 9% of its revenues. Due to its relatively high operating costs compared with 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 is exploring an opportunity to jointly invest with Tiger Airways in a new low-cost airline, Thai Tiger Airways. The new LCC will be positioned as a fighting brand of THAI to compete for market share from other LCCs in both domestic and regional markets.
For the first nine months of 2010, THAI’s posted a net profit of Bt12,453 million compared with a net loss of Bt1,569 million in the same period last year. Adjusted operating income as a percentage of sales drastically improved, leaping from 5.5% in 2008 to 19.0% in 2009 and 17.9% in the first nine months of 2010. The rebound was the result of a drop in jet fuel prices, a successful cost saving program, and the global economic upturn in 2010. The adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) interest coverage ratio also improved, rising from 2.1 times in 2008 to 5.5 times in 2009 and to 6.3 times in the first nine months of 2010. The adjusted funds from operations (FFO) to total debt ratio also increased, climbing from 4.4% in 2008 to 17.6% in 2009 and 11.4% (non-annualized) in the first nine months of 2010. The adjusted debt to capitalization ratio declined from 77.0% in 2008 to 69.9% at the end of September 2010 due to a capital increase from a public offering in the third quarter of 2010 and improving operating performance. However, due to the sizable capital expenditures required to maintain fleet competitiveness, financial leverage is expected to remain high in the medium term, said TRIS Rating. -- End