TRIS Rating Co., Ltd. has affirmed the company rating of Aeronautical Radio of Thailand Ltd. (AEROTHAI) at "AA". The rating reflects the company's strategic importance to the country and its monopoly status as the only air traffic control service provider in Thailand. The rating also reflects increasing demand for air transportation in the Asia-Pacific region in the medium to long term even though short-term demand was depressed by the Severe Acute Respiratory Syndrome (SARS) outbreak and terrorism concerns. In addition, implicit support from the government is a major factor enhancing the company's credit profile. These strengths are partially offset by an expected deterioration in cash flow adequacy and AEROTHAI's high gearing ratio, which will remain high because of substantial future investment needs.
TRIS Rating reported that AEROTHAI is a state enterprise, 91% owned by the government. The Thai government, as a member of the International Civil Aviation Organization (ICAO), is responsible for providing air transportation safety over Thailand. AEROTHAI has been appointed by the government to operate the country's air traffic control service and aeronautical telecommunication services, which are critical functions for air transportation safety. Currently, AEROTHAI is the sole provider of Thailand's air traffic services. The company's responsibility area is the Bangkok Flight Information Region and certain airspace over the South China Sea. Its operations comply with international practices set by the ICAO. AEROTHAI's operation is influenced by government supervision. All budgets are approved by the board of directors, which mostly consist of representatives from the Ministry of Finance, the Ministry of Transportation and the Royal Thai Air Force. The government appoints AEROTHAI's nine out of 11 board members, while two members are representatives from airline shareholders. AEROTHAI's air service charges are determined with the consent of the Civil Aviation Board. In addition, its investments are approved by the Ministry of Transportation and the cabinet.
TRIS Rating said, after a sharp decline in global air traffic in 2001, which remained stagnant through 2002 and 2003, the latest forecasts by ICAO indicate that total world passenger traffic will rebound with 4.4% growth in 2004 and a 6.3% expansion in 2005. Air traffic in the Asia-Pacific region in terms of passenger-kilometers will grow by 4.9% in 2004 and 6.8% in 2005, after falling 0.8% in 2003 because of SARS concerns. The International Air Transportation Association (IATA) also anticipates that passenger traffic should show robust growth in 2003-2004 and the growth rate of total scheduled international passengers for 2004 will be around 7%. AEROTHAI faced an 8% drop in air traffic in fiscal year 2002, mostly because the company returned responsibility for the upper airspace over Cambodia to Cambodia. However, total air traffic movement under AEROTHAI's responsibility area has shown a slight increase of 1% in 2003 despite the effects of the war in Iraq and SARS. Meanwhile, total arrival and departure traffic in airports throughout Thailand in 2003 increased 4%, up from 2% growth in 2002.
According to AEROTHAI's shareholding agreement, the airline members make up the shortfall if AEROTHAI's expenses exceed its income. On the other hand, AEROTHAI refunds airline members' fee if its income exceeds its expenses. AEROTHAI foresees a need for substantial debt-financed capital expenditures over the next two years, with funds earmarked for the construction of air traffic control complex and air traffic control system at Suvarnabhumi Airport. The company's total debt to capitalization, therefore, is expected to increase to over 80% in 2004. Its funds from operations (FFO) to total debt ratio is likely to deteriorate. AEROTHAI's high leverage and low cash flow protection will pose a challenge to its financial management. Although AEROTHAI's financial status is vulnerable, it maintains a strong credit profile because government support enhances its credit strength, TRIS Rating said. -- End
Aeronautical Radio of Thailand Ltd. (AEROTHAI) Company Rating: AA
TRIS Rating reported that AEROTHAI is a state enterprise, 91% owned by the government. The Thai government, as a member of the International Civil Aviation Organization (ICAO), is responsible for providing air transportation safety over Thailand. AEROTHAI has been appointed by the government to operate the country's air traffic control service and aeronautical telecommunication services, which are critical functions for air transportation safety. Currently, AEROTHAI is the sole provider of Thailand's air traffic services. The company's responsibility area is the Bangkok Flight Information Region and certain airspace over the South China Sea. Its operations comply with international practices set by the ICAO. AEROTHAI's operation is influenced by government supervision. All budgets are approved by the board of directors, which mostly consist of representatives from the Ministry of Finance, the Ministry of Transportation and the Royal Thai Air Force. The government appoints AEROTHAI's nine out of 11 board members, while two members are representatives from airline shareholders. AEROTHAI's air service charges are determined with the consent of the Civil Aviation Board. In addition, its investments are approved by the Ministry of Transportation and the cabinet.
TRIS Rating said, after a sharp decline in global air traffic in 2001, which remained stagnant through 2002 and 2003, the latest forecasts by ICAO indicate that total world passenger traffic will rebound with 4.4% growth in 2004 and a 6.3% expansion in 2005. Air traffic in the Asia-Pacific region in terms of passenger-kilometers will grow by 4.9% in 2004 and 6.8% in 2005, after falling 0.8% in 2003 because of SARS concerns. The International Air Transportation Association (IATA) also anticipates that passenger traffic should show robust growth in 2003-2004 and the growth rate of total scheduled international passengers for 2004 will be around 7%. AEROTHAI faced an 8% drop in air traffic in fiscal year 2002, mostly because the company returned responsibility for the upper airspace over Cambodia to Cambodia. However, total air traffic movement under AEROTHAI's responsibility area has shown a slight increase of 1% in 2003 despite the effects of the war in Iraq and SARS. Meanwhile, total arrival and departure traffic in airports throughout Thailand in 2003 increased 4%, up from 2% growth in 2002.
According to AEROTHAI's shareholding agreement, the airline members make up the shortfall if AEROTHAI's expenses exceed its income. On the other hand, AEROTHAI refunds airline members' fee if its income exceeds its expenses. AEROTHAI foresees a need for substantial debt-financed capital expenditures over the next two years, with funds earmarked for the construction of air traffic control complex and air traffic control system at Suvarnabhumi Airport. The company's total debt to capitalization, therefore, is expected to increase to over 80% in 2004. Its funds from operations (FFO) to total debt ratio is likely to deteriorate. AEROTHAI's high leverage and low cash flow protection will pose a challenge to its financial management. Although AEROTHAI's financial status is vulnerable, it maintains a strong credit profile because government support enhances its credit strength, TRIS Rating said. -- End
Aeronautical Radio of Thailand Ltd. (AEROTHAI) Company Rating: AA