TRIS Rating Affirms Company Rating of “AEROTHAI” at “AA/Stable”

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 sole air navigation service provider in Thailand, good safety record, and capable and experienced management team. In addition, implicit support from the government is a major factor that enhances the company’s credit profile. However, these strengths are partially offset by a substantial debt burden and the exposure of the air transportation industry to several uncontrollable external factors. The “stable” outlook reflects AEROTHAI’s status as the nation’s sole air traffic control service provider, implicit support from the Thai government, and efficient operation. AEROTHAI’s outlook and/or rating will be revised should the company be able to sustain its improved operating performance so that it can recoup all accumulated under-recovery.

TRIS Rating reported that AEROTHAI is a state enterprise with 91% of the shares owned by the Thai government and the remaining 9% 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 and efficiency over Thailand. AEROTHAI has been appointed by the government as the sole provider of air traffic control service in Thailand. The company utilizes proven technologies for air navigation services, which are critical elements of air transportation safety. The company’s area of responsibility is the Bangkok Flight Information Region (BKK FIR). Its operations comply with ICAO standards and recommended practices.

TRIS Rating said, AEROTHAI’s operations are heavily influenced by government policies. For example, all investments must be approved by both the Ministry of Transport and the Cabinet. The company’s air navigation service charge structure must be approved by the Civil Aviation Board. The government appoints nine of the 11 board members, while two members are the representatives of the minority shareholders, which are the member airlines. The government representatives are mostly from the Ministry of Finance and the Ministry of Transport.

The revenue from air traffic control services typically contributes more than 90% of AEROTHAI’s total revenues. As a non-profit organization, the company’s tariff-setting mechanism is based on a cost-recovery basis. However, AEROTHAI’s operation is also sensitive to event risks. During FY2009-FY2010, the company posted huge under-recovery from member airlines as the global economic slowdown and domestic political turmoil caused air traffic movements to fall short of projections. Thus, at the end of FY2010, the company recorded a total of Bt828 million in accumulated under-recovery. However, in FY2011, the company posted an over-collection from member airlines of Bt377 million compared with Bt181 million of under-recovery in the previous year. The rebound in AEROTHAI’s performance was due to a substantial revival of air traffic movements. In FY2011, air traffic movements increased by 14.5%, following the brighter prospects for the tourism industry and the absence of political tension. AEROTHAI’s revenue increased by 16.2% to Bt6,067 million in FY2011. Funds from operations (FFOs) increased from Bt518 million in FY2010 to Bt1,040 million in FY2011. Thus, the FFOs to total debt ratio improved from 9.7% in FY2010 to 20.9% in FY2011. AEROTHAI is expected to have over-collection in FY2012 as air traffic volume has continued to rise in the first half of FY2012 and a new pricing scheme is implemented from June 2012. With the new tariff adjustments and higher traffic volumes, the company plans to fully recover its accumulated under-recovery within the next few years.

AEROTHAI’s total debt to capitalization ratio stayed at approximately 87% during the past four years. However, leverage is expected to rise in the next few years as AEROTHAI plans to invest Bt4,460.31 million in the Air Navigation Services Infrastructure Development Project. This investment will be partly funded by new borrowings. The project consists of the setting up of a new air traffic management centre (ATMC), the enhancement of the communication navigation surveillance (CNS) system and air traffic management network integration, and the acquisition of two new flight inspection aircraft. The investment is required to enhance AEROTHAI’s ability and systems to keep it competitive with other air navigation service providers. Although AEROTHAI’s financial status has weakened, the company’s business profile remains strong due to its monopoly status and the strong support from the government, said TRIS Rating. — End

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