TRIS Rating Co., Ltd. has announced the downgrade for the company and issue ratings of Thai Airways International PLC (THAI) to “A” from “A+” with “stable” outlook. The downgrade reflects further deterioration in THAI’s standalone creditworthiness due to THAI’s financial profile that is weakening more than expectation. The weakening is the result of political turmoil in Thailand which began in the second half of 2008, high fuel price volatility, and the global economic slowdown. The ratings are enhanced by THAI’s status as a large state enterprise and the national flag carrier of Thailand which continues to receive support from the Thai government. The Ministry of Finance (MOF) is currently the company’s major shareholder with a 51.0% shares. Governmental support is evidenced by the re-lending of foreign loans from the MOF to THAI without additional charges and the issuance of letters of comfort, which covers some of THAI’s aircraft financial lease agreements, to foreign creditors. In addition, the MOF recently set up a short-term credit facility of Bt200,000 million to help all state enterprises seeking bridge financing during the unfavorable environment of the credit market. TRIS Rating believes that THAI will be one of the state enterprises that will get the benefit from this financing program.
The “stable” outlook is based on the expectation that THAI will get support from the government to solve its short-term liquidity problem. The Bt200,000 million short-term credit facility program of the MOF, together with support from the government in helping the company to find appropriate funding sources, should help relieve the liquidity problem. The outlook is also based on the expectation that operating performance should recover no later than the beginning of 2010.
TRIS Rating reported that THAI’s operating performance was hit hard by surging fuel prices in the first eight months of 2008. THAI could not take full advantage of the sharp decline in fuel prices in the last quarter of 2008 since the company hedged around 41% of the fuel used in the last quarter of 2008 at a relatively high price. In addition, political turmoil culminated in an Emergency Decree announced in September 2008 and the eight-day closure of the Suvarnabhumi and Don Muang airports during the end of 2008. The political crisis caused a sharp drop in THAI’s traffic and its revenue in the fourth quarter, the peak season of its business. Due to its relatively high operating leverage and the Bt3,108 million of aircraft pre-delivery payment, the liquidity position of THAI deteriorated sharply in the last quarter of 2008. Short-term debt increased rapidly in the last quarter of 2008, driving the total debt to capitalization ratio to be higher than previously expected.
The continued deterioration of the secondary market for aircraft also hurt THAI. Due to a slowdown in the aircraft secondary market, THAI could not sell four A340-500 aircraft previously used on the Bangkok-New York route. The sale was postponed from the last quarter of 2008 to this year. THAI’s debt burden remains high as the planes remain unsold. The drop in demand for aircraft in the secondary market is expected to push the price down further. It is expected that THAI will incur a loss when selling these four aircraft. In addition, the company has an obligation to financial lease eight A330-300 and six A380 aircraft which will be delivered during 2009 to 2011. Weakening operating performance coupled with high capital expenditures and scheduled debt repayments in 2009 will continue to pressure liquidity. THAI is preparing a plan to address the short term liquidity problem. The plan will be submitted for Cabinet approval in February 2009.
At the end of December 2008, THAI had Bt7,500 million in cash on hand. Normally, THAI maintains a minimum cash balance of Bt6,000 million for operations. The outstanding short-term debt facility has increased rapidly, rising from Bt7,500 million at the end of September 2008 to Bt17,980 million at the end of December 2008. The company has long-term debentures and loans under financial lease agreements due in 2009 worth around Bt22,774 million. Capital expenditures are budgeted at Bt33,367 million for 2009 while funds from operations is expected to be Bt15,000-Bt20,000 million. At the end of December 2008, the company had a committed unused credit facility of Bt3,421 million. On 20 January 2009 the company received Bt4,790 million from selling debentures to institutional investors. The company will need to borrow Bt45,000-Bt55,000 million in new loans, depending on the operating performance of the company in 2009. The new borrowings have already been approved by the board of directors.
Before this downgrade announcement, TRIS Rating used to downgrade the company and issue ratings of THAI to “A+/Stable” from “AA-/Stable” on 25 July 2008. -- End
Company Rating: Downgraded to A from A+ Issue Ratings: THAI09OA: Bt7,500 million senior debentures due 2009 Downgraded to A from A+ THAI104A: Bt3,455.29 million senior debentures due 2010 Downgraded to A from A+ THAI10OA: Bt4,500 million senior debentures due 2010 Downgraded to A from A+ THAI10NA: Bt3,000 million senior debentures due 2010 Downgraded to A from A+ THAI115A: Bt6,000 million senior debentures due 2011 Downgraded to A from A+ THAI11OA: Bt4,500 million senior debentures due 2011 Downgraded to A from A+ THAI11OB: Bt987.92 million senior debentures due 2011 Downgraded to A from A+ THAI12NA: Bt4,500 million senior debentures due 2012 Downgraded to A from A+ THAI130A: Bt2,556.79 million senior debentures due 2013 Downgraded to A from A+ THAI14OA: Bt3,000 million senior debentures due 2014 Downgraded to A from A+ THAI155A: Bt3,000 million senior debentures due 2015 Downgraded to A from A+ Rating Outlook: Stable Rating Outlook: Stable
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