TRIS Rating affirms the company rating of Thai Airways International PLC (THAI) and the ratings of THAI’s outstanding senior unsecured debentures at “A”. At the same time, TRIS Rating assigns the rating of “A” to THAI’s proposed issue of up to Bt6,000 million in senior unsecured debentures. The proceeds from the new debenture will be used to refinance maturing debts and reserve for investments.
The ratings reflect THAI’s position as the leading international passenger airline in Thailand, plus the benefits of being a member of Star Alliance, the world's largest airline alliance. The ratings are enhanced from THAI’s stand-alone credit profile to reflect its status as a state enterprise and the flag carrier of Thailand. TRIS Rating believes that the government will continue to provide strong support for THAI on a timely basis, especially if any financial difficulties arise at the airline. The ratings, however, are constrained by THAI’s high financial leverage, high operating costs, and vulnerability to unforeseen event risks, and fuel price fluctuations.
In the first nine months of 2017, revenue was Bt140,034 million, a 4.7% increase from the same period last year. The operating profit margin declined to 16.9% from 19.8%, due to an 11% year-on-year (y-o-y) increase in the cost of jet fuel.
THAI’s capital structure remains weak. The debt to capitalization ratio, at 88.8%, was high due to large debt-funded capital expenditures. In addition, net worth has eroded sharply due to severe losses during the past couple of years. THAI has plans to renew the existing fleet of aircraft, which entails large capital expenditures. As a result, the capital structure is expected to stay at this level.
RATING OUTLOOK
The “stable” outlook reflects the expectation that THAI’s operating performance will improve as planned.
RATING SENSITIVITIES
The ratings and/or outlook are unlikely to be upgraded in the near term. However, if THAI’s operating performance improves significantly or if the debt to EBITDA (earnings before interest, tax, depreciation, and amortization) ratio stays below five times on a sustained basis, the ratings and/or outlook could be revised upward.
The ratings could be lowered if the operating profit margin deteriorates significantly or if TRIS Rating believes that the level of government support will be reduced.
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