TRIS Rating Co., Ltd. has affirmed the company rating of Thai Airways International PLC (THAI) and the ratings of its senior debentures at “A” with “stable” outlook. The ratings reflect the leading position of THAI in international air routes in and out of Thailand and the benefits derived as a member of Star Alliance, the largest airline alliance in the world. The ratings are enhanced by its status as a state enterprise and the flag carrier of Thailand. THAI receives support, both operating and financing, 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 its shares. The Vayupak Fund, an investment fund established by the Ministry of Finance to invest in listed state enterprises, also has a considerable stake in THAI (17.2%). However, these strengths are partially offset by exposures to fuel price volatility, and event risk, e.g., epidemics, terrorism, and political instability. In addition, its relatively high financial leverage reduced financial flexibility and lowered the ability to make new investments.
The “stable” outlook is based on the expectation that THAI will maintain its dominant position in international flights from Thailand and that governmental support as a major shareholder will continue, particularly during adverse situations. In addition, its operating performance is expected to improve and capital structure will not deteriorate further from the current level. The outlook also takes into consideration the improved liquidity position after the company refinances its short-term debts with long-term loans to help improve financial flexibility in the short to medium term.
TRIS Rating reported that THAI is one of the largest airlines in Asia. At the end of March 2009, its international network comprised 58 international destinations with 513 flights per week, down from 63 destinations and 567 flights per week in March 2008. Capacity, measured as available-seat-kilometers (ASK), in the first half of 2009 dropped by 13.05% year-on-year (y-o-y). The capacity reduction was in response to a weak air traffic demand as a result of the global economic slowdown and the political unrest in Thailand. 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 the Thai international airports. The market share of THAI declined slightly from around 40% during 2005-2007 to 37.7% in 2008 due to the cancellation of direct flights from Bangkok to New York and several unfavorable factors. However, due to its superior status as the national flag carrier, 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, in 2008, the operating performance of THAI was hit hard by fuel price volatility, the global economic slowdown and severe political turmoil. The company faced a significant net loss of Bt21,379 million, the worst in its history. Adjusted operating income as a percentage of sales dropped sharply from 18.4% in fiscal year (FY) 2007 to 5.7% in 2008. The ratio improved to around 17.1% in the first half of 2009 after the jet fuel price declined significantly from around US$120/barrel in 2008 to US$60/barrel in the first half of 2009. In terms of cash flow protection, the adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) interest coverage ratio dropped from 5.7 times in FY2007 to 2.1 times in 2008 before recovering back to 4.4 times in the first half of 2009. The adjusted fund from operation (FFO) to total debt ratio also declined, falling from 18.6% in FY2007 to 7.2% in 2008 and 6.8% (non-annualized) in the first half of 2009. The adjusted debt to capitalization ratio increased significantly from 67.5% in FY2007 to around 77% in 2008 and the first half of 2009. Due to the weakening operating performance and the sizable capital expenditures required to maintain fleet competitiveness, financial leverage is expected to remain high in the medium term.
For the domestic market, overall air traffic has increased substantially since low-cost carriers (LCC) were introduced in 2003. The total market grew from 7.2 million passengers in 2003 to around 15-16 million passengers in 2007-2008. However, the domestic market share of THAI declined steadily from 84% in 2003 to around 33% in 2007 before improved slightly to 37.7% in 2008. The domestic market contributes around 8% of its revenues, reflecting its focus on international routes. THAI has a clear strategy to improve profitability by reducing flights on loss-making domestic routes and letting LCCs, including Nok Air, an associated company, service these routes. However, Nok Air has also been affected by the sharp rises in fuel prices and losses from expanding into other regional markets. -- End
Company Rating: Affirmed at A Issue Ratings: THAI09OA: Bt7,500 million senior debentures due 2009 Affirmed at A THAI104A: Bt3,455.29 million senior debentures due 2010 Affirmed at A THAI10OA: Bt4,500 million senior debentures due 2010 Affirmed at A THAI10NA: Bt3,000 million senior debentures due 2010 Affirmed at A THAI115A: Bt6,000 million senior debentures due 2011 Affirmed at A THAI11OA: Bt4,500 million senior debentures due 2011 Affirmed at A THAI11OB: Bt987.92 million senior debentures due 2011 Affirmed at A THAI12NA: Bt4,500 million senior debentures due 2012 Affirmed at A THAI13OA: Bt2,556.79 million senior debentures due 2013 Affirmed at A THAI14OA: Bt3,000 million senior debentures due 2014 Affirmed at A THAI155A: Bt3,000 million senior debentures due 2015 Affirmed at A Rating Outlook: Stable
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