TRIS Rating has affirmed the company rating of Thai Airways International Public Company Limited (THAI) and the ratings of its existing and new issuance senior unsecured debentures at “A+”.Mr. Charamporn Jotikasthira, THAI President, said TRIS Rating (TRIS) assigned the rating of “A+” to THAI‘s existing senior unsecured debentures. THAI received a rating of “A+” to the proposed issue of up to Bt 4,000 million in senior unsecured debentures with a “negative” outlook. The proceeds from the issuance of the proposed debentures will be used to refinance THAI’s maturing debts and finance investments.
The credit rating reflects support received from the government as a state enterprise and the Company’s status as the national carrier of Thailand. TRIS believes that the government will provide strong support to THAI on a timely basis, especially during financial difficulty. However, the rating reflects THAI’s high leverage, competitive environment, high operating cost, and its vulnerability to event risks and fuel price fluctuations.

THAI is a state enterprise, with the Ministry of Finance (MOF) holding 51% of the Company’s outstanding shares and the Government Savings Bank (GSB) owning another 2.1%. Vayupak Fund holds 15.1% of THAI but this stake is considered as a private investment, despite the fact that Vayupak Fund was established by the MOF.

As one of the largest airlines in Asia, THAI offers both premium and light premium full service air transport under its THAI flagship brand and under THAI Smile, a wholly owned subsidiary. In addition, the Company holds a 39.2% stake in NOK Airline PLC, a major low-cost carrier (LCC) in Thailand.

During the past five years, THAI’s operating performance has weakened due to many external factors. THAI’s operating margin dropped from 19% in 2009 to 9.6% in 2013, and to 4.5% in first nine months of 2014. The weakened profitability was partly affected by domestic event risks such as flood disaster and series of political conflicts. In addition, fuel price remained high and competition has become more intense from both full-service airlines and LCCs limiting pricing power. THAI has a relatively higher operating cost and the lower flexibility in cost cutting has contributed to weaker cash flows and liquidity position.

THAI’s level of leverage has been on the rise and is expected to remain high in the medium term. The planned capital expenditures during the next four years will be around Bt 80 billion, which will go towards investment in fuel efficient aircraft. The level of leverage is higher than the current rating category. TRIS expects that THAI will have a deleveraging plan spanning the next two years.

The government has prioritized to restructure seven loss-making state enterprises, including THAI. The State Enterprise Policy Commission was appointed and delegated to each state enterprise’s Board of Directors in order to formulate respective restructuring plans. THAI will conclude its plan within January 2015 and will immediately implement the plan upon receiving approval. The plan is expected to reshape THAI’s organization and operational structure as well as improve its competitive position, operational efficiency, and profitability.

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