TRIS Rating Affirms Company Rating of “AEROTHAI” at AA” With “Stable” Outlook

TRIS Rating Co., Ltd. has affirmed the company rating of Aeronautical Radio of Thailand Ltd. (AEROTHAI) at “AA”. The outlook has been revised to “stable” from “positive” due to lower air traffic volume than projected which will increase under-collection and tighten liquidity in the short to medium term. The “AA” 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 record on safety, and its capable and experienced management team. In addition, implicit support from the government is a major factor enhancing the company’s credit profile. These strengths are partially offset by the exposure of the air transportation industry to several uncontrollable external factors and the substantial and increasing debt burden required to fund AEROTHAI’s investment projects even though these projects will further strengthen future operating capacity.

The “stable” outlook reflects AEROTHAI’s status as the nation’s sole air traffic control operator, implicit support from the government, and strong operational performance. However, AEROTHAI’s outlook and rating could be revised should the company fail to balance revenues and expenses and maintain an adequate liquidity position over the next few years.

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 provide the country’s air traffic control service including the systems and technologies for air navigation service, which are critical functions for 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. AEROTHAI’s operations are heavily influenced by government policies. All investments must be approved by both the Ministry of Transport and the Cabinet. All budgets are approved by the 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.

The revenue from air traffic control service contributed 93% of total revenue in fiscal year 2008 (FY2008). Cash flow depends on air traffic volume, which is susceptible to various uncontrollable external factors such as an influenza pandemic, war, and economic downturns. Thanks to the increases in the flight charge and multiplying factor in FY2007, funds from operations (FFO) rose from Bt16 million in FY2006 to Bt582 million in FY2007 and Bt575 million in FY2008. The FFO to total debt ratio improved significantly from 0.4% in FY2006 to 12.3% in FY2007 and 11.3% in FY2008. The company also recorded an over-collection of Bt83 million in FY2008 which is better than the shortfall of Bt74 million reported in FY2007. However, the company is expected to post a substantial under-collection in FY2009 due to the plunge in air traffic volume as a result of the airport closures in late 2008, the prolong global economic slowdown, the A/H1N1 flu pandemic, and unresolved political turbulence. These uncontrollable factors will lessen the confidence of tourist and reduce the desire to visit Thailand, which will adversely affect air traffic volume.

TRIS Rating said, AEROTHAI incurred substantial amounts of debt during FY2004-FY2006 to fund investments at Suvarnabhumi International Airport. As a result, the total debt to capitalization ratio increased from 64.4% in FY2004 to 80.3% in FY2006. The company also had high levels of capital expenditures during FY2007-FY2008 of approximately Bt900-Bt1,000 million per annum. These investments were partially financed by debt. Thus, the total debt to capitalization ratio rose to 86.8% in FY2008. The leverage ratio is expected to remain high over the medium term, since the investments in new equipment and systems are required to enhance AEROTHAI’s ability to qualify as a regional air navigation control provider. Though AEROTHAI’s financial status is weakening, the company’s business profile remains strong due to its monopoly status and strong support from the government. -- End

Company Rating: Affirmed at AA Rating Outlook: Stable from Positive Stable from Positive Copyright 2009, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information.

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