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

TRIS Rating 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 services provider in Thailand, good safety record, and experienced management team. The company’s credit profile is further enhanced by the implicit support from the government. However, these strengths are partially offset by a high debt burden, the exposure of the air transportation industry to event risk, and the high level of the company’s investment during the next few years. The “stable” outlook reflects AEROTHAI's efficient operations, the ability to adjust the pricing scheme, and the implicit support from the Thai government. In addition, the company is expected to complete the investment of Air Navigation Services Infrastructure Development Project and make a smooth transition to the new air traffic control system.

AEROTHAI is a state enterprise with 91% of total shares owned by the Thai government and the remaining 9% held by various member airlines. The Thai government, as a contracting state of the International Civil Aviation Organization (ICAO), is responsible for providing safe and efficient air transportation over Thailand. AEROTHAI has been appointed by the government as the sole provider of air traffic control services in Thailand. The company’s area of responsibility is the Bangkok Flight Information Region (BKK FIR). Its operations comply with the ICAO’s standards and recommended practices. AEROTHAI’s operations are supervised by the government. The government designates nine of AEROTHAI’s 11 board members, while two members are appointed by the member airlines. The government representatives are mostly from the Ministry of Finance and the Ministry of Transport. All investments must be presented through the Ministry of Transport for the Cabinet approval. The structure of AEROTHAI’s air navigation charges must be approved by the Civil Aviation Board.

As a non-profit organization, the air navigation charging mechanism is structured on a cost-recovery basis and the company adjusts the pricing mechanism when appropriate. Air traffic control services typically comprise more than 90% of AEROTHAI’s total revenues. The provision of air traffic services is sensitive to event risk as air travel is driven by tourism industry and security concerns of travelers. During FY2009 and FY2010, the company posted under-recovery from member airlines as the global economic slowdown and domestic political turmoil caused air traffic movements to drop significantly. In FY2013, AEROTHAI began using a new pricing scheme which complies with the ICAO standard. Propelled by the revival of the Thai tourism industry and the popularity of low-cost carriers (LCC), AEROTHAI posted an over collection from the member airlines during the past three fiscal years 2011-2013. In addition, AEROTHAI recovered all the accumulated under-recovery.

In FY2013, AEROTHAI’s revenue increased by 16.2% to Bt7,996 million. For the first six months of FY2014, revenue is expected to increase to Bt4,812 million, or a 25% year-on-year (y-o-y) growth. The rise was mainly due to higher air traffic movements and the new air navigation charges. Funds from operations (FFO) increased from Bt1,186 million in FY2012 to Bt2,047 million in FY2013. Total debt slightly increased from Bt4,543 million in FY2012 to Bt4,683 million in FY2013. The FFO to total debt ratio improved from 26.1% in FY2012 to 43.7% in FY2013. AEROTHAI’s total debt to capitalization ratio held steady at 85% during FY2012 and FY2013. Leverage is expected to rise because AEROTHAI plans to invest of Bt8,377 million over the next three years. The major investment is the Air Navigation Services Infrastructure Development Project, worth approximately Bt6,400 million, which will set up a new air traffic control system. This new system will improve AEROTHAI’s ability to handle the substantial increase of air traffic volume in the future. The investment will be funded mainly by new borrowings.

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