TRIS Rating Co., Ltd. has affirmed the company rating of Aeronautical Radio of Thailand Ltd. (AEROTHAI) at “AA” with “stable” outlook. The rating reflects the strategic importance of air navigation services to the country, the company’s status as the sole air navigation service provider in Thailand, good safety record, and its capable and experienced management team. In addition, implicit support from the government is a major factor that enhances the company’s credit profile. These strengths are partially offset by a substantial debt burden and the exposure of the air transportation industry to several uncontrollable external factors.
The “stable” outlook reflects AEROTHAI’s status as the nation’s sole air traffic control operator, implicit support from the government, and strong operational performance. However, AEROTHAI’s outlook and rating could be revised should the company fail to balance revenues and expenses and maintain an adequate liquidity position over the next few years.
TRIS Rating reported that AEROTHAI is a state enterprise, 91% owned by the government; the remaining 9% is held by various airlines. The Thai government, as a contracting state of the International Civil Aviation Organization (ICAO), is responsible for providing air transportation safety over Thailand. AEROTHAI has been appointed by the government as the sole provider of air traffic control service in Thailand. The service includes the systems and technologies for air navigation services, which are critical functions for air transportation safety. The company’s area of responsibility is the Bangkok Flight Information Region (BKK FIR). Its operations comply with ICAO standards and recommended practices. AEROTHAI’s operations are heavily influenced by government policies. All investments must be approved by both the Ministry of Transport and the Cabinet. All budgets are approved by the board of directors, most of whom are representatives of the Ministry of Finance, the Ministry of Transport, and the Royal Thai Air Force. The government appoints nine of the 11 board members, while two members are the representatives of the shareholders from member airlines. The company’s air service charges must be approved by the Civil Aviation Board.
TRIS Rating said, the revenue from air traffic control service contributed more than 90% of its total revenues. As a non-profit organization, its tariff-setting mechanism is based on a cost-recovery regime. Under-collections from airlines in some years is expected to be recovered by over-collections in the following years. However, the global economic slowdown and the political turmoil in the past few years caused air traffic movements to fall short of projections while the tariff could not be adjusted accordingly. In FY2009, the air traffic movements dropped by 9.1%, cutting total revenues by 7% to Bt4,781 million. As a result, the accumulated under-collections from member airlines increased sharply to Bt650 million in FY2009 from Bt120 million in FY2008. Funds from operations (FFO) also dropped from Bt575 million in FY2008 to Bt173 million in FY2009. The FFO to total debt ratio weakened from 11.3% in FY2008 to 3.3% in FY2009. Although the company’s performance significantly recovered in the first half of FY2010 due to the global economic recovery and less concern over the A/H1N1 flu epidemic, the political turmoil in the second half of FY2010 has lessened the confidence and desire of tourists to visit Thailand, which negatively affect air traffic volume and the company’s performance. Thus, AEROTHAI is expected to have a shortfall for another year. Based on the anticipated recovery of the global economy and the tariff adjustments, the company plans to fully recover its accumulated shortfall within the next three years.
AEROTHAI’s total debt to capitalization ratio stayed at approximately 88% during the past two years because a substantial amount of debt was used to fund its investments, especially at Suvarnabhumi Airport and replacement of obsolete equipment. The company is in the process of requesting a budget of Bt4,460.31 million from the government to set up a new air traffic management centre (ATMC), to invest in communication navigation surveillance (CNS) system enhancements and air traffic management network integration, and to acquire new flight inspection aircraft. The investments are required to enhance AEROTHAI’s ability to qualify as a regional air navigation service provider. The leverage ratio could be lower if the budget is approved by the Cabinet as an equity injection. Although AEROTHAI’s financial status has weakened, the company’s business profile remains strong due to its monopoly status and strong support from the government, said TRIS Rating. -- End
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