Air Transportation
Play
Better sentiment after ICAO extends deadline Rec : NEUTRAL Neutral
Air Transportation
- ICAO extend deadline for aviation standard improvement
The International Civil Aviation Organization (ICAO) previously warned Thailand to fix problems regarding significant safety concern (SSC), license issuance, and aviation regulation by June 18. Thai government could not fix the problems in time. However, after the transport minister and the ICAO president discussed on the progress in Canada yesterday, the ICAO was satisfied with Thai aviation's improvement, so it extended the deadline from June 18 to November 2015 (with no more prior warning).
- Thailand likely to fix problem within deadline
The five-month deadline extension for Thai aviation regulator is anticipated to relieve negative sentiment on the air transportation sector. The government would be able to fix problems pointed out by the ICAO (e.g. SSC and license issuance) within the new deadline; the aforementioned problems are likely to be completely solved in July and October, respectively. Therefore, we project ICAO to upgrade Thailand's rating back to normal and expect Thai aviation to be accepted worldwide again by this year. The ICAO's sanction would have no significant adverse on the sector. We maintain the sector’s 2015 earnings forecast at B12bn, reviving from net loss in 2014.
- Top pick: AAV with highest upside
Although negative sentiment from the ICAO downgrading Thai aviation standard has been relieved, it is still unclear whether the problems would be completely fixed within the deadline or if Thai aviation will be approved again by the ICAO. We reiterate NEUTRAL. Top pick is AAV(FV@B6) for its largest upside because the share price has plunged severely not only because of the ICAO issue but also negative sentiment from allies (no direct effect on AAV). Air Asia Berhad (AAB from Malaysia holding 45% stake, while AAV holds 55% shares) has high net gearing, while IAA (AAB holding 40% stake) and PAA (AAB holding 49% stake) face loss and liquidity problem; AAB has been working on improving IAA, PAA, and its own liquidity. This is a good entry point for AAV. We also favor turnaround BA([email protected]); its earnings forecast is likely to be revised up.
