TRIS Rating Co., Ltd. has affirmed the company rating of Thai Airways International PLC (THAI) and the ratings of its senior debentures at “AA-” with “stable” outlook. The ratings continue to reflect the company’s leading position in international air routes in and out of Bangkok and the benefits derived as 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 major ownership stake held by the Thai government. These strengths are partially offset by intense competition, increased risk from rising fuel prices, and the company’s high debt burden.
The “stable” outlook is based on the expectation that THAI will maintain its dominant position for international air traffic in Thailand. This outlook is also based on the expectation that government support will continue, particularly during adverse situations. Though traffic demand in the long term is favorable, air transportation demand can be affected by various uncontrollable events. The outlook also takes into consideration the capital expenditures required over the next few years. THAI will also face a more difficult environment in light of intense competition and higher fuel costs. Therefore, THAI’s performance will depend largely on its ability to increase revenue, reduce costs, and improve productivity.
TRIS Rating reported that THAI is considered as the flag carrier of Thailand and is one of the largest airlines in Asia. The Thai government remains a major shareholder with a 54% direct shareholding in THAI. The Vayupak Fund, an investment fund originated by the Ministry of Finance to invest in listed state enterprises, also has a considerable stake in THAI (18%). Although the government in 2003 reduced its stake in THAI from 79% to 54%, it has clearly stated its intention to retain a minimum of 51% of the carrier’s shares. As a state enterprise and the national flag carrier, THAI has received strong financial and operating support from the government. The Thai government has provided THAI with bridge loans and has helped the company obtain funding.
TRIS Rating said, THAI has enjoyed a strong market position in international routes over a long period, with a market share of more than 39% of international passenger traffic through Thailand’s international airports. Although its market share declined from 45% in 2003 to 39% in 2006, THAI’s market share is still far higher than the runner-up. THAI is expected to maintain its leading position in international routes from Thailand’s home base airports. Although its existing traffic rights and take-off and landing slots are still well protected, high competition from low cost carriers and legacy carriers, both of which are expanding routes and fleets, will challenge THAI’s market position.
THAI benefits from being a founding member of Star Alliance. These benefits include the ability to expand THAI’s network through code sharing with partner airlines, leveraging Star Alliance’s global brand, frequent flyer programs, and joint marketing and cost saving activities. Currently, THAI’s international network comprises 63 international destinations with 555 flights per week. By code sharing within the Star Alliance, THAI can serve more than 155 international destinations around the world.
For the domestic market, air traffic has substantially increased since low-cost carriers (LCCs) were introduced in 2003. THAI’s domestic market share plunged to 39% in 2006 from 85% in 2003 while total market was almost double from 7.2 million passengers to 14 million passengers. However, the domestic market contributes only 7% of THAI’s revenues as THAI has focused on international markets. THAI has a clear strategy to improve profitability by reducing flights on loss-making domestic routes and letting LCCs, including its subsidiary Nok Air, service these routes. LCCs have a different target market although a portion of the target group overlaps with THAI, especially in routes with less than three hours of flying time.
TRIS Rating also said that THAI’s performance has recently been pressured by high competition and surging operating costs, particularly from fuel and staff costs. Operating margin declined from 25% in 2004 to 18% and 16% in 2005 and 2006, respectively. In terms of cash flow protection, the earnings before interest, tax, depreciation, and amortization (EBITDA) interest coverage and funds from operations (FFO) to total debt ratios have also declined since fiscal year 2005. However, THAI’s operating margin recovered to 23% during the first half of fiscal year 2007 (October 2006-March 2007), as it was high travel season and fuel prices fell temporarily. Although THAI has succeeded in maintaining cabin factor since the second half of fiscal year 2007, rising fuel prices are still a major concern and may impact the company’s overall performance. To enhance competitiveness, THAI has a plan to expand the fleet by purchasing 14 aircraft during 2007-2011. However, the fleet expansion requires large capital expenditures, which will be funded largely by additional borrowing. Therefore, THAI’s financial leverage will remain high, said TRIS Rating. -- End
Thai Airways International PLC (THAI):
Company Rating: Affirmed at AA-
Issue Ratings:
THAI085A: Bt6,000 million senior debentures due 2008 Affirmed at AA-
THAI08OA: Bt5,500 million senior debentures due 2008 Affirmed at AA-
THAI09OA: Bt7,500 million senior debentures due 2009 Affirmed at AA-
THAI10OA: Bt4,500 million senior debentures due 2010 Affirmed at AA-
THAI115A: Bt6,000 million senior debentures due 2011 Affirmed at AA-
THAI11OA: Bt4,500 million senior debentures due 2011 Affirmed at AA-
THAI14OA: Bt3,000 million senior debentures due 2014 Affirmed at AA-
THAI155A: Bt3,000 million senior debentures due 2015 Affirmed at AA-
Rating Outlook: Stable
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Copyright 2007, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information.
The “stable” outlook is based on the expectation that THAI will maintain its dominant position for international air traffic in Thailand. This outlook is also based on the expectation that government support will continue, particularly during adverse situations. Though traffic demand in the long term is favorable, air transportation demand can be affected by various uncontrollable events. The outlook also takes into consideration the capital expenditures required over the next few years. THAI will also face a more difficult environment in light of intense competition and higher fuel costs. Therefore, THAI’s performance will depend largely on its ability to increase revenue, reduce costs, and improve productivity.
TRIS Rating reported that THAI is considered as the flag carrier of Thailand and is one of the largest airlines in Asia. The Thai government remains a major shareholder with a 54% direct shareholding in THAI. The Vayupak Fund, an investment fund originated by the Ministry of Finance to invest in listed state enterprises, also has a considerable stake in THAI (18%). Although the government in 2003 reduced its stake in THAI from 79% to 54%, it has clearly stated its intention to retain a minimum of 51% of the carrier’s shares. As a state enterprise and the national flag carrier, THAI has received strong financial and operating support from the government. The Thai government has provided THAI with bridge loans and has helped the company obtain funding.
TRIS Rating said, THAI has enjoyed a strong market position in international routes over a long period, with a market share of more than 39% of international passenger traffic through Thailand’s international airports. Although its market share declined from 45% in 2003 to 39% in 2006, THAI’s market share is still far higher than the runner-up. THAI is expected to maintain its leading position in international routes from Thailand’s home base airports. Although its existing traffic rights and take-off and landing slots are still well protected, high competition from low cost carriers and legacy carriers, both of which are expanding routes and fleets, will challenge THAI’s market position.
THAI benefits from being a founding member of Star Alliance. These benefits include the ability to expand THAI’s network through code sharing with partner airlines, leveraging Star Alliance’s global brand, frequent flyer programs, and joint marketing and cost saving activities. Currently, THAI’s international network comprises 63 international destinations with 555 flights per week. By code sharing within the Star Alliance, THAI can serve more than 155 international destinations around the world.
For the domestic market, air traffic has substantially increased since low-cost carriers (LCCs) were introduced in 2003. THAI’s domestic market share plunged to 39% in 2006 from 85% in 2003 while total market was almost double from 7.2 million passengers to 14 million passengers. However, the domestic market contributes only 7% of THAI’s revenues as THAI has focused on international markets. THAI has a clear strategy to improve profitability by reducing flights on loss-making domestic routes and letting LCCs, including its subsidiary Nok Air, service these routes. LCCs have a different target market although a portion of the target group overlaps with THAI, especially in routes with less than three hours of flying time.
TRIS Rating also said that THAI’s performance has recently been pressured by high competition and surging operating costs, particularly from fuel and staff costs. Operating margin declined from 25% in 2004 to 18% and 16% in 2005 and 2006, respectively. In terms of cash flow protection, the earnings before interest, tax, depreciation, and amortization (EBITDA) interest coverage and funds from operations (FFO) to total debt ratios have also declined since fiscal year 2005. However, THAI’s operating margin recovered to 23% during the first half of fiscal year 2007 (October 2006-March 2007), as it was high travel season and fuel prices fell temporarily. Although THAI has succeeded in maintaining cabin factor since the second half of fiscal year 2007, rising fuel prices are still a major concern and may impact the company’s overall performance. To enhance competitiveness, THAI has a plan to expand the fleet by purchasing 14 aircraft during 2007-2011. However, the fleet expansion requires large capital expenditures, which will be funded largely by additional borrowing. Therefore, THAI’s financial leverage will remain high, said TRIS Rating. -- End
Thai Airways International PLC (THAI):
Company Rating: Affirmed at AA-
Issue Ratings:
THAI085A: Bt6,000 million senior debentures due 2008 Affirmed at AA-
THAI08OA: Bt5,500 million senior debentures due 2008 Affirmed at AA-
THAI09OA: Bt7,500 million senior debentures due 2009 Affirmed at AA-
THAI10OA: Bt4,500 million senior debentures due 2010 Affirmed at AA-
THAI115A: Bt6,000 million senior debentures due 2011 Affirmed at AA-
THAI11OA: Bt4,500 million senior debentures due 2011 Affirmed at AA-
THAI14OA: Bt3,000 million senior debentures due 2014 Affirmed at AA-
THAI155A: Bt3,000 million senior debentures due 2015 Affirmed at AA-
Rating Outlook: Stable
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Copyright 2007, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information.