Aviation stocks slide after US downgrade
AVIATION and aviation-related stocks yesterday witnessed a drop across the board in response to the Federal Aviation Administration (FAA)'s decision to downgrade the Thai authority over its aviation audit standards.
Bangkok Airways (BA) shares opened down 0.88 per cent to Bt22.5, Thai Airways International (THAI) dropped 1.15 per cent to Bt8.60, and Nok Airlines (NOK) was down 0.74 per cent to Bt6.75. while Airports of Thailand (AOT) slid 1.54 per cent to Bt319.
Local brokerage houses commented that the FAA decision would not affect aviation stocks as both AAV, BA and NOK do not fly to the US, while THAI had just cancelled its flights on the Bangkok-Seoul-Los Angeles route since October 25.
Maybank Kim Eng Securities said the FAA decision was not entirely unexpected. There have been rumblings for several months that a downgrade was likely.
The Thai airline index dropped 4 per cent quarter to date and 21 per cent after the International Civil Aviation Organization handed Thailand a red flag on June 15.
The FAA downgrade means Thai carriers cannot increase flights to the US and existing flights face extra checks. The impact of the FAA’s decision is that Thai airlines could face higher lease rates, stricter maintenance covenants and increased insurance premiums. The FAA downgrade typically has a domino effect. The next hurdle for Thai aviation is the European Aviation Safety Agency (EASA) will release its results in the middle of December. If EASA downgrades, THAI – which gets 35 per cent of revenue in that region – is likely to be the most affected. Its Europe expansion plan (18 per cent of capacity) will have to be put on hold. This could limit potential growth in European markets.
THAI will need to shift its additional capacity in 2016 to Asia Pacific, which already suffers from high competition and limited room for passenger yield growth. According to the brokerage, the impacts are minimal from the FAA’s downgrade as: 1) the region accounts for less than 2 per cent of Thai-registered airline capacity; 2) Airlines can change flight routes to countries such as India, China, and the EU.
AOT’s share price yesterday dropped 0.62 per cent to close at Bt322. Bangkok Airways share price fell 4.41 per cent to close at Bt21.70. THAI share price dropped 7.47 per cent to close at Bt8.05. Nok Airlines share price dipped 2.94 per cent to Bt6.60 by close and Asia Aviation fell 6.01 per cent to close at Bt4.38.
