TRIS Rating has upgraded the company rating of Aeronautical Radio of Thailand Ltd. (AEROTHAI) to “AA+” from “AA”. The outlook remains “stable”. The factors supporting the upgrades include an improving financial profile since AEROTHAI can recoup accumulated under-recovery, the benefits from a new pricing scheme, and the room to increase the air navigation charges. Furthermore, the company plans to set up a reserve account which will mitigate AEROTHAI’s liquidity risk and act as a cushion during industry downturn. The rating still reflects the strategic importance of air navigation services to the country, the company’s status as the sole air navigation service provider in Thailand, its good safety record, and its experienced management team. In addition, the 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, the exposure of the air transportation industry to several uncontrollable external factors, and high investment required during the next few years. The “stable” outlook reflects AEROTHAI’s status as the nation’s sole air traffic control service provider, the implicit support from the Thai government, and efficient operations. In addition, the company is expected to maintain its strong operating performance and smoothly complete its new infrastructure project.
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’s area of responsibility is the Bangkok Flight Information Region (BKK FIR). Its operations comply with 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 company’s air navigation charges structure must be approved by the Civil Aviation Board.
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 air navigation charging mechanism is set on a cost-recovery basis. AEROTHAI’s performance is also sensitive to event risks. During FY2009 and FY2010, the company posted huge under-recovery from member airlines as the global economic slowdown and domestic political turmoil caused air traffic movements to drop significantly. However, the strong growth of the tourism industry and a new pricing scheme substantially improved the company’s performance. The company posted an over-collection of Bt377 million in FY2011 and an over-collection of Bt175 million in FY2012. AEROTHAI is expected to have over-collection in FY2013 as air traffic volume has continued to rise in the first half of FY2013. In addition, the company announced to raise its air navigation charges which will be affective in October 2013.
In FY2012, AEROTHAI’s revenue increased by 13.5% to Bt6,883 million due to higher air traffic movements and the new air navigation charges. Funds from operations (FFO) increased from Bt518 million in 2010 to over Bt1,000 million during FY2011-2012. Total debt declined from Bt4,987 million in FY2011 to Bt4,543 million in FY2012 due to scheduled repayments. The FFO to total debt ratio improved from 9.7% in FY2010 to 20.9% in FY2011 and 26.1% in FY2012. AEROTHAI’s total debt to capitalization ratio slightly declined, falling from 86.2% in FY2011 to 85.0% in FY2012. However, leverage is expected to rise in the next few years as AEROTHAI plans to invest Bt4,376 million in the Air Navigation Services Infrastructure Development Project. This investment will be funded mostly 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 upgrade its systems to be compatible with evolving technology. The company’s business profile remains strong due to its monopoly status and the strong support from the government.
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