TRIS Rating Co., Ltd. has downgraded the company rating of Thai Airways International PLC (THAI) and the ratings of its senior debentures to “A+” from “AA-”. At the same time, TRIS Rating has assigned a “A+” rating to THAI’s proposed issue of up to Bt9,000 million in senior debentures. The outlook remains “stable”. The downgrade reflects the weakening financial profile of THAI mainly due to significant fuel price increases in the face of intense competition. The continuing surge in fuel prices is expected to worsen the operating performance of THAI. Fuel accounts for almost 40% of operating expenses but THAI generally hedges only 20%-30% of its annual fuel requirements. In addition, THAI’s fleet is relatively old. Large capital expenditures will be needed in subsequent years to replace the existing aircraft. Therefore, financial leverage is expected to remain high. Despite these issues, the ratings continue to reflect the company’s leading position in international air routes in and out of Thailand and the benefits derived as a member of Star Alliance, the world’s largest airline alliance. The ratings are also enhanced by THAI’s status as a state enterprise and the flag carrier of Thailand. THAI receives strong operating and financial support from its major shareholder, the Thai government. The Thai government remains a major shareholder with a 51.0% direct shareholding while the Government Savings Bank holds 2.7% of THAI’s shares. The Vayupak Fund, an investment fund created by the Ministry of Finance to invest in listed state enterprises, also has a considerable stake in THAI (17.2%).
The “stable” outlook is based on the expectation that THAI will maintain its dominant position in international flights from Thailand and that governmental support will continue, particularly during adverse situations. The outlook is also based on the expectation that management actions to offset higher fuel costs will help maintain cash flow protection at the current level. THAI’s performance will depend largely on its ability to increase revenue, reduce costs, and improve efficiency.
TRIS Rating reported that THAI is one of the largest airlines in Asia. As of March 2008, THAI’s international network comprised 63 international destinations with 567 flights per week. THAI has enjoyed a strong market position in international routes for many years, with a market share of around 40% of international passenger traffic through Thailand’s international airports. Although market share declined from 45% in 2003 to around 40% during the past three years, it is still far higher than the runner-up. THAI is expected to maintain its leading position in international routes originating in Thailand. As a founding member of Star Alliance, THAI can expand its network through code sharing with partner airlines to leverage the Star Alliance global brand, and offer frequent flyer programs plus other joint marketing and cost-saving activities.
TRIS Rating said, THAI’s performance has been affected by event risk, high competition, and surging operating costs. In July 2008, THAI halted direct flights from Bangkok to New York due to heavy losses incurred from the rising fuel prices. The higher fuel costs could not be fully passed on to passengers despite a series of fuel surcharges. The sharp rise in fuel prices has hammered profit margins, with long-range flights suffering the most. Thus, the company has to carefully manage the number of flights on each route in order to keep costs low.
THAI’s adjusted operating income as a percentage of sales declined from around 25% in 2003-2004 to around 16%-18% in 2005-2007. The ratio is expected to slide to 14%-15% as fuel costs remain high. In addition, THAI might incur additional losses from the sale of four aircraft used on the Bangkok-New York route due to the appreciation of the Thai baht. In terms of cash flow protection, though the adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) interest coverage ratio and the adjusted funds from operations (FFO) to total debt ratio both improved slightly in FY2007, these ratios are expected to weaken because operating performance will be negatively impacted from higher jet fuel prices while leverage remains high. The adjusted debt to capitalization ratio remains high at around 68%. Due to the sizable capital expenditures required to maintain fleet competitiveness, financial leverage is expected to remain at around the current level.
TRIS Rating said, overall domestic air traffic has increased substantially since low-cost carriers (LCCs) were introduced in 2003. THAI’s domestic market share plunged to 33% in 2007 from 84% in 2003 while the total market grew to 16.4 million passengers from 7.2 million passengers during the same period. However, the domestic market contributes around 8% of THAI’s revenues, reflecting the company’s focus on international routes. 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. However, Nok Air has also been affected by the sharp rises in fuel prices. -- End
Thai Airways International PLC (THAI)
Company Rating: Downgraded to A+ from “AA-”
Issue Ratings:
THAI08OA: Bt5,500 million senior debentures due 2008 Downgraded to A+ from “AA-”
THAI09OA: Bt7,500 million senior debentures due 2009 Downgraded to A+ from “AA-”
THAI10OA: Bt4,500 million senior debentures due 2010 Downgraded to A+ from “AA-”
THAI10NA: Bt3,000 million senior debentures due 2010 Downgraded to A+ from “AA-”
THAI115A: Bt6,000 million senior debentures due 2011 Downgraded to A+ from “AA-”
THAI11OA: Bt4,500 million senior debentures due 2011 Downgraded to A+ from “AA-”
THAI12NA: Bt4,500 million senior debentures due 2012 Downgraded to A+ from “AA-”
THAI14OA: Bt3,000 million senior debentures due 2014 Downgraded to A+ from “AA-”
THAI155A: Bt3,000 million senior debentures due 2015 Downgraded to A+ from “AA-”
Up to Bt9,000 million senior debentures due within 2018 A+
Rating Outlook: Stable
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Copyright 2008, 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 in international flights from Thailand and that governmental support will continue, particularly during adverse situations. The outlook is also based on the expectation that management actions to offset higher fuel costs will help maintain cash flow protection at the current level. THAI’s performance will depend largely on its ability to increase revenue, reduce costs, and improve efficiency.
TRIS Rating reported that THAI is one of the largest airlines in Asia. As of March 2008, THAI’s international network comprised 63 international destinations with 567 flights per week. THAI has enjoyed a strong market position in international routes for many years, with a market share of around 40% of international passenger traffic through Thailand’s international airports. Although market share declined from 45% in 2003 to around 40% during the past three years, it is still far higher than the runner-up. THAI is expected to maintain its leading position in international routes originating in Thailand. As a founding member of Star Alliance, THAI can expand its network through code sharing with partner airlines to leverage the Star Alliance global brand, and offer frequent flyer programs plus other joint marketing and cost-saving activities.
TRIS Rating said, THAI’s performance has been affected by event risk, high competition, and surging operating costs. In July 2008, THAI halted direct flights from Bangkok to New York due to heavy losses incurred from the rising fuel prices. The higher fuel costs could not be fully passed on to passengers despite a series of fuel surcharges. The sharp rise in fuel prices has hammered profit margins, with long-range flights suffering the most. Thus, the company has to carefully manage the number of flights on each route in order to keep costs low.
THAI’s adjusted operating income as a percentage of sales declined from around 25% in 2003-2004 to around 16%-18% in 2005-2007. The ratio is expected to slide to 14%-15% as fuel costs remain high. In addition, THAI might incur additional losses from the sale of four aircraft used on the Bangkok-New York route due to the appreciation of the Thai baht. In terms of cash flow protection, though the adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) interest coverage ratio and the adjusted funds from operations (FFO) to total debt ratio both improved slightly in FY2007, these ratios are expected to weaken because operating performance will be negatively impacted from higher jet fuel prices while leverage remains high. The adjusted debt to capitalization ratio remains high at around 68%. Due to the sizable capital expenditures required to maintain fleet competitiveness, financial leverage is expected to remain at around the current level.
TRIS Rating said, overall domestic air traffic has increased substantially since low-cost carriers (LCCs) were introduced in 2003. THAI’s domestic market share plunged to 33% in 2007 from 84% in 2003 while the total market grew to 16.4 million passengers from 7.2 million passengers during the same period. However, the domestic market contributes around 8% of THAI’s revenues, reflecting the company’s focus on international routes. 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. However, Nok Air has also been affected by the sharp rises in fuel prices. -- End
Thai Airways International PLC (THAI)
Company Rating: Downgraded to A+ from “AA-”
Issue Ratings:
THAI08OA: Bt5,500 million senior debentures due 2008 Downgraded to A+ from “AA-”
THAI09OA: Bt7,500 million senior debentures due 2009 Downgraded to A+ from “AA-”
THAI10OA: Bt4,500 million senior debentures due 2010 Downgraded to A+ from “AA-”
THAI10NA: Bt3,000 million senior debentures due 2010 Downgraded to A+ from “AA-”
THAI115A: Bt6,000 million senior debentures due 2011 Downgraded to A+ from “AA-”
THAI11OA: Bt4,500 million senior debentures due 2011 Downgraded to A+ from “AA-”
THAI12NA: Bt4,500 million senior debentures due 2012 Downgraded to A+ from “AA-”
THAI14OA: Bt3,000 million senior debentures due 2014 Downgraded to A+ from “AA-”
THAI155A: Bt3,000 million senior debentures due 2015 Downgraded to A+ from “AA-”
Up to Bt9,000 million senior debentures due within 2018 A+
Rating Outlook: Stable
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Copyright 2008, 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.