Tris Rating has affirmed the rating of Aeronautical Radio of Thailand Ltd (AEROTHAI) at AAA, reflecting its monopolistic status and close relationship with the government.
Aerothai is the sole air navigation service provider in the country. Tris Rating views the company's credit profile is enhanced by its unique and important role to the government and the potential to have extraordinary support in a stress scenario.
The government designated Aerothai as the sole provider of air traffic control services in Thailand. The company is a state enterprise with 91% of its equity stake held by the Thai government. The government designates nine of the company's 11 board members, while the other two are appointed by the member airlines.
Aerothai's corporate plan and capital expenditure budget are subject to the approval of the Ministry of Transport and the cabinet.
The company has a good safety record. The firm's rate of air traffic incidents ranged from 2.2-3.7 per 100,000 instrument flight rule (IFR) flight movements over the past five years. These figures are below the global average of 4.7 per 100,000 IFR flight movements.
The growth in air traffic volume has led to improvements in Aerothai's financial performance. The company posted revenue growth of 4.7% during fiscal year 2017 and 6.7% in the first six months of fiscal year 2018.
This growth was attributed to the increasing air traffic volume at the six airports operated by Airports of Thailand Plc (AoT), which grew by 6.0% in fiscal year 2017 and 5% year-on-year (y-o-y) in the first six months of fiscal year 2018. As a result, Aerothai reported an over-collection of 2 billion baht in FY2017 and 1.63 billion baht for the first six months of FY2018.
The company's total debt declined from 1.36 billion baht in FY2017 to 634 million baht at the end of March 2018. The total debt to capitalisation ratio improved to 39.1% in the first six months of FY2018, compared with 58.5% in FY2017. Over the next three years, Aerothai plans to invest 4.75 billion in capital expenditures. Based on its projected capital expenditures, Tris Rating estimates that Aerothai's debt to capitalisation ratio will gradually decline to 25% in FY2020.
Tris Rating forecasts the company's funds from operations (FFO) in FY2018 to be around 2.5 billion baht. These sources of funds are more than sufficient to cover the 127 million baht in long-term debt repayment obligations and 1.4 billion in capital expenditures in FY2018.
Tris Rating's base case scenario assumes that Aerothai's revenue will grow around 6% per annum during FY2018-FY2020. But Tris expects the company's over-collection will decline over the next three years as Aerothai plans to raise its operating expenses by 12% annually to support growing air traffic volume.
During the next three years, Tris estimates that Aerothai's FFO to total debt ratio will remain high at over 100% and the earnings before interest, tax, depreciation and amortisation interest coverage ratio will be above 25 times.
A rating downgrade scenario may occur, although it is highly unlikely, if Aerothai's linkage with the government weakens to the degree that it changes Tris Rating's view on the prospect of extraordinary support from the government.