Fitch Thailand Affirms Bangkok Aviation Fuel Services' Ratings

Fitch Ratings (Thailand) Limited has today affirmed Thailand's Bangkok Aviation Fuel Services Public Company Limited's (BAFS) National Long-term rating at 'A-(tha)' (A minus(tha)) and National Short-term rating at 'F2(tha)'. The Outlook on the ratings is Stable. The ratings are based on BAFS' dominant position as the sole operator of depot and hydrant network and as the major into-plane service operator at Thailand's Suvarnabhumi Airport (SA), with a 90% market share, and its status as sole fuel service provider at the reopened Bangkok International Airport (BIA). The ratings are also supported by BAFS' major shareholders being key users of aviation fuel services and senior management's strong track record. The ratings also reflect BAFS' improved operating performance, as well as its strong and stable cash flow generating capability. As BAFS is only responsible for fuel services (while its trading partners need to source and supply JET A-1 fuel for filling), the volatility of oil prices has no direct impact on the company's earnings. Nonetheless, the ratings also take into account BAFS' high financial leverage as a result of its substantial investment at SA, although this has improved since SA's opening in September 2006. Other operational concerns include a potential new depot operator at SA, which could increase price competition in the medium term. In addition, unusually high oil prices, if they persist, could impact the airline industry, leading to lower uplift volumes and earnings for BAFS. BAFS' 2007 performance was in line with Fitch's expectation. The company reported 89% yoy growth in EBITDAR to THB1.1 billion in 9M07, thanks to a doubling of its fuel service fee at SA and an increase in fuel uplift volume. The Q407 results should remain strong due to a normally high travel season. Net adjusted debt to EBITDAR dropped to 2.7x at end-9M07 from the peak of 4.9x at end-2005. An expected continued growth in earnings and a lower capital expenditure should help improve its leverage to the range of 2.0x-2.5x by end-2008. The foreign exchange risk has been largely mitigated as BAFS changed the fee quotations for its depot and hydrant services from US Dollar to Thai Baht starting from last October, while the into-plane service at SA is still quoted in US Dollar to maintain competitiveness with the only other into-plane service provider. Currently, around 80% of BAFS's service revenue is baht denominated (previously 100% US Dollar-linked), which better matches its operating expenses and debt obligation in local currency. The Stable Outlook is based on Fitch's expectation of BAFS' strong cash flow generation and a decline in capital expenditure which should help improve its financial leverage to be more consistent with the current rating level within the next 12-18 months.

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