TRIS Rating Co., Ltd. has affirmed the company rating of Thai Airways International PLC (THAI) and the ratings of its existing senior debentures at “A+”. At the same time, TRIS Rating has assigned the ratings of “A+” to THAI’s proposed issue of up to Bt3,000 million in senior debentures and the senior debentures worth Bt2,000 million (THAI16DA). The outlook remains “stable”. The ratings reflect the leading position of THAI in international air routes in and out of Thailand and the benefits derived as a member of Star Alliance, the largest airline alliance in the world. However, these strengths are partially offset by its relatively high leverage and exposure to fuel price volatility, foreign exchange risk, and event risk, e.g., epidemics, natural disasters, and political unrest. In addition, intense competition from both premium- and low-cost carriers will continue to constrain the passenger yield (revenue per passenger-kilometer) in the short to medium term. The “stable” outlook is based on the expectation that THAI will maintain its dominant position in international flights from Thailand. The ratings take into consideration the intrinsic benefit of having the government as a major shareholder. Hence, a privatization could lower THAI's credit ratings by a certain level. In addition, THAI’s ability to improve profit by reducing operating costs and fuel costs are crucial to maintain its credit quality, especially as the company is making huge investments.
TRIS Rating said, the ratings of THAI are enhanced from the company’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%. Currently, the Ministry of Finance (MOF) remains the major shareholder with a 51% shareholding while the Government Savings Bank holds 2.4% of THAI’s shares. THAI’s shares of 15.1% held by the Vayupak Fund are considered as a private investment, although the Vayupak Fund was established by the MOF.
TRIS Rating reported that THAI is one of the largest airlines in Asia. At the end of March 2011, its international network comprised 62 international destinations with 589 flights per week. Capacity, measured as available seat kilometers (ASK), in the first nine months of 2011 increased by 4.9% year-on-year (y-o-y) since the company added six new aircraft to its fleet. THAI has a strong market position in international routes. In 2010, THAI had a market share of around 36.5% of international passenger traffic through the Thai international airports.
For the domestic market, overall air traffic has increased substantially since low-cost carriers (LCC) were introduced in 2003. The total market grew from 7.2 million passengers in 2003 to 13.3 million passengers in 2010. However, despite the rise in the size of the market, the domestic market share of THAI has declined steadily, falling from 85% in 2003 to around 40% in 2010. 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 established a new business unit, “Thai Smile”, which will operate a new light premium airline, targeting middle-range customers. Thai Smile was created to gain market share in the LCC segment in both domestic and regional markets. In the first nine months of 2011, THAI’s cabin factor was 72.2%, down from 73.6% in the first nine months of 2010. The freight load factor also declined, slipping from 69.6% in the first nine months of 2010 to 66.5% in the first nine months of 2011.
In 2011, THAI’s operating performance was weaker as jet fuel prices increased significantly and a fierce competition limited the surcharge adjustment. The adjusted operating income as a percentage of sales declined from 17.2% in 2010 to 11.5% in the first nine months of 2011. The adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) interest coverage ratio dropped from 6.2 times in 2010 to 4.2 times in the first nine months of 2011. The adjusted funds from operations (FFO) to total debt ratio also fell, tumbling from 19.1% to 10.3% (non-annualized) during the same period. The adjusted debt to capitalization ratio slightly increased from 66.1% in 2010 to 67.6% at the end of September 2011. Financial leverage is expected to increase and remain high in the medium term, considering the sizable capital expenditures required to acquire new aircraft. However, the company will benefit from acquisition of new aircraft from greater efficiency, less fuel consumption, and maintenance expense reduction, said TRIS Rating. -- End
Company Rating: Affirmed at A+ Issue Ratings: THAI12NA: Bt4,500 million senior debentures due 2012 Affirmed at A+ THAI13OA: Bt2,556.79 million senior debentures due 2013 Affirmed at A+ THAI14OA: Bt3,000 million senior debentures due 2014 Affirmed at A+ THAI155A: Bt3,000 million senior debentures due 2015 Affirmed at A+ THAI165A: Bt2,000 million senior debentures due 2016 Affirmed at A+ THAI185A: Bt1,555 million senior debentures due 2018 Affirmed at A+ THAI185B: Bt1,445 million senior debentures due 2018 Affirmed at A+ THAI215A: Bt833 million senior debentures due 2021 Affirmed at A+ THAI215B: Bt2,167 million senior debentures due 2021 Affirmed at A+ THAI16DA: Bt2,000 million senior debentures due 2016 A+ Up to Bt3,000 million senior debentures due within 2022 A+ Rating Outlook: Stable
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