TRIS Rating affirms the company rating on Thai Airways International PLC (THAI) and the ratings on 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 Bt10,000 million in senior unsecured debentures. The proceeds from the new debentures will be used to refinance maturing debts and for investments.
The company rating is enhanced from THAI’s stand-alone credit profile based on our expectation of the high likelihood of government support due to its status as a state enterprise. The stand-alone credit profile reflects its position as national flag carrier and a leading international passenger airline in Thailand. The ratings, however, are constrained by rising financial leverage in line with its aircraft acquisition plan and persistently high operating cost. The ratings are also constrained by fuel price fluctuations and event risks that could adversely impact air travel demand.
In, 2018, the company’s revenue was Bt198,056 million, a 3.2% increase from the previous year. The operating profit margin declined to 14.0% in 2018, compared with 18.6% in 2017 due to the rise in both jet fuel price and other non-fuel costs. However, TRIS Rating expects THAI’s financial performance to gradually improve over the next few years, mainly due to lower fuel cost. We project THAI’s operating profit margin will recover to a range of 18%-19% during 2019-2021.
THAI’s capital structure remains weak. The debt to capitalization ratio remained high at 92% as of December 2018. 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 during 2019-2021.
RATING OUTLOOK
The “stable” outlook reflects the expectation that THAI’s operating performance will be in line with our expectation and its status as a state enterprise is maintained.
RATING SENSITIVITIES
The ratings could be lowered if the operating profit margin deteriorates significantly without material reduction in leverage or if TRIS Rating believes that the level of government support will be reduced. The ratings and/or outlook are unlikely to be upgraded in the near term. However, the ratings and/or outlook could be revised upward if THAI’s operating performance improves significantly or its debt to the earnings before interest, tax, depreciation, and amortization (EBITDA) ratio stays below 5 times on a sustained basis.
RELATED CRITERIA
- Key Financial Ratios and Adjustments, 5 September 2018
- Rating Methodology – Corporate, 31 October 2007
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