TRIS Rating Co., Ltd. has affirmed the rating of Thai Airways International PLC (THAI) and the ratings of its THAI08OA and THAI10OA senior debentures at "AA-". At the same time, TRIS Rating has assigned a "AA-" rating to THAI's proposed up to Bt12,000 million senior debentures, the proceeds from which will be used to refinance its high-cost operating lease. The ratings continue to reflect THAI's capability to consistently deliver favorable profit, its dominant domestic market position, a strong presence in the international air routes in and out of Bangkok and the benefits from being a member of Star Alliance, the world's largest airline alliance. The ratings are enhanced by THAI's status as the national flag carrier and the Thai government as its major shareholder. These strengths are partially offset by intense competition due to excess capacity in the global airline industry, higher risk of jet fuel price, and its high debt burden. Although THAI's plans for fleet expansion and product renovation will enhance its competitive position, it must make large capital expenditures which will be partly funded by additional borrowing. The "stable" outlook of THAI is based on the expectation that it will continue to generate favorable performance due to continued strong demand for air transportation and support from its major shareholder. However, it may face a more difficult competitive environment and high fuel cost, which can be partly passed on to customers as a fuel surcharge.
TRIS Rating reported that THAI was established in 1960 through joint investment between the Thai government and Scandinavian Airlines System to operate an international air transport carrier. Currently, the Thai government directly holds 54% of its shares. As a state enterprise and the national flag carrier, THAI has received strong support from the government in both financial and operational aspects. Some competition has sprung up after the government implemented an "open skies" policy in 1998 by allowing all Thai airlines to freely operate every route subject to availability of traffic right. In terms of passenger traffic for domestic and international routes at the Bangkok International Airport, THAI had around 53% of market share in 2003. It enjoyed an extremely strong market position in domestic routes dominating around 84% of passenger traffic at the same airport in 2003, a slight drop from 87% in 2002. Although its share in domestics routes will be challenged after low cost carriers entered the market in late 2003, the company will maintain its dominant status in domestic traffic because of its better quality of products and services. In terms of international passenger arriving in and departing from Bangkok in 2003, THAI's market share was significantly higher at 43% than the runner-up, Singapore Airlines (5%). The company will likely be able to maintain its market share for international routes because its existing traffic rights and airport slots are well protected.
TRIS Rating said that THAI has made large capital spending plans for 2005-2010 to enlarge its fleet from 83 to 102 aircraft that will raise available seat-kilometers (ASK) from 69,398 million in 2004 to 98,229 million in 2010, a 6% growth per annum on average. The company will also upgrade its in-flight product offerings for its existing aircraft. The capital expenditures include the construction of its facilities at the Suvarnabhumi International Airport. These investment programs will be funded with its internally generated cash and new debt funding. Although these expenditures help THAI strengthen its competitive edge, it will potentially increase the company's already and relatively high leverage. The ratio of operating lease-adjusted debt to capitalization has consistently improved after the 1997 financial crisis, falling from 94% at the end of September 1999 to 68% at the end of June 2004. However, this ratio remains high. THAI's leverage would improve if it revalued some aircraft which were booked at exchange rates prior to the baht devaluation in 1997.
The company delivered favorable performance even during the last economic crisis and global worries over terrorist attacks. The ratio of its operating margin before depreciation and amortization has stayed between 24%-29% during the last five years. THAI has generated relatively strong profitability because it benefits from lower labor cost, accounted for 19% of its total operating cost while other airlines typically average 25% to 40%. Fuel cost has recently been the major concern for all airlines, including THAI. Its average cost of fuel for the first nine months of 2004 was US$1.02 per gallon, up by 16% from the average cost in 2003. Fuel cost accounted for 23% of THAI's total operating cost for the first nine months of 2004, rising from 18% in 2002, due to the recent sharp increase in oil prices, TRIS Rating said. -- End
Thai Airways International PLC (THAI) Company Rating: Affirmed at AA- Issue Ratings: THAI08OA: Bt5,500 million senior debentures due 2008 Affirmed at AA- THAI10OA: Bt4,500 million senior debentures due 2010 Affirmed at AA- THAI#3: Up to Bt12,000 million senior debentures due 2009 and 2011 AA- Rating Outlook: Stable
TRIS Rating reported that THAI was established in 1960 through joint investment between the Thai government and Scandinavian Airlines System to operate an international air transport carrier. Currently, the Thai government directly holds 54% of its shares. As a state enterprise and the national flag carrier, THAI has received strong support from the government in both financial and operational aspects. Some competition has sprung up after the government implemented an "open skies" policy in 1998 by allowing all Thai airlines to freely operate every route subject to availability of traffic right. In terms of passenger traffic for domestic and international routes at the Bangkok International Airport, THAI had around 53% of market share in 2003. It enjoyed an extremely strong market position in domestic routes dominating around 84% of passenger traffic at the same airport in 2003, a slight drop from 87% in 2002. Although its share in domestics routes will be challenged after low cost carriers entered the market in late 2003, the company will maintain its dominant status in domestic traffic because of its better quality of products and services. In terms of international passenger arriving in and departing from Bangkok in 2003, THAI's market share was significantly higher at 43% than the runner-up, Singapore Airlines (5%). The company will likely be able to maintain its market share for international routes because its existing traffic rights and airport slots are well protected.
TRIS Rating said that THAI has made large capital spending plans for 2005-2010 to enlarge its fleet from 83 to 102 aircraft that will raise available seat-kilometers (ASK) from 69,398 million in 2004 to 98,229 million in 2010, a 6% growth per annum on average. The company will also upgrade its in-flight product offerings for its existing aircraft. The capital expenditures include the construction of its facilities at the Suvarnabhumi International Airport. These investment programs will be funded with its internally generated cash and new debt funding. Although these expenditures help THAI strengthen its competitive edge, it will potentially increase the company's already and relatively high leverage. The ratio of operating lease-adjusted debt to capitalization has consistently improved after the 1997 financial crisis, falling from 94% at the end of September 1999 to 68% at the end of June 2004. However, this ratio remains high. THAI's leverage would improve if it revalued some aircraft which were booked at exchange rates prior to the baht devaluation in 1997.
The company delivered favorable performance even during the last economic crisis and global worries over terrorist attacks. The ratio of its operating margin before depreciation and amortization has stayed between 24%-29% during the last five years. THAI has generated relatively strong profitability because it benefits from lower labor cost, accounted for 19% of its total operating cost while other airlines typically average 25% to 40%. Fuel cost has recently been the major concern for all airlines, including THAI. Its average cost of fuel for the first nine months of 2004 was US$1.02 per gallon, up by 16% from the average cost in 2003. Fuel cost accounted for 23% of THAI's total operating cost for the first nine months of 2004, rising from 18% in 2002, due to the recent sharp increase in oil prices, TRIS Rating said. -- End
Thai Airways International PLC (THAI) Company Rating: Affirmed at AA- Issue Ratings: THAI08OA: Bt5,500 million senior debentures due 2008 Affirmed at AA- THAI10OA: Bt4,500 million senior debentures due 2010 Affirmed at AA- THAI#3: Up to Bt12,000 million senior debentures due 2009 and 2011 AA- Rating Outlook: Stable