Sunday, May 31, 2009

AVIATION HUB ASPIRATIONS COULD FUEL MORE GROWTH FOR BAFS

By: SHAREINVESTO

Published: 29/05/2009 at 12:00 AM
Newspaper section: Business

Bangkok Aviation Fuel Services Plc (BAFS) provides aviation fuel services including aviation depot and aircraft refuelling service at Bangkok International Airport. Its major shareholders consist of Thai Airways International Plc, Caltex Oil (Thailand) Ltd, PTT Plc, Esso (Thailand) Plc., The Shell Company of Thailand Ltd, Airports of Thailand Plc, Air Total (Thailand) Co Ltd, and ExxonMobil Aviation Inc. BAFS was listed on the Stock Exchange of Thailand on April 4, 2002. Jarern Pavarojkit, the deputy managing director for operations, discusses the company's strategy and outlook.BUSINESS

Jarern: Double-digit growth at year-end

1. Please explain BAFS's business model.

BAFS provides services in the aviation refuelling industry at Suvarnabhumi, Don Mueang, Samui and Sukhothai airports. Our scope of services comprises: aviation fuel depot receiving and reserve storage; distribution of aviation fuel via a hydrant pipeline network under the aircraft aprons; and into-plane refuelling services for aircraft.

The business model at Suvarnabhumi is different from Don Mueang. At Don Mueang, BAFS is the sole aircraft-refuelling provider. We provide the fuel depot facilities to handle the Jet A-1 for fuel suppliers and then refuel all aircraft landing at Don Mueang. We rent the hydrant pipeline system from Airports of Thailand Plc (AOT) and refuel aircraft with our dispenser trucks. At Suvarnabhumi we provide services including an aviation fuel depot and aircraft refuelling storage. BAFS was granted the concession by AOT to be one of two into-plane service providers, and we invested in fuel depot facilities. The hydrant pipeline at Suvarnabhumi was invested in and is operated by TARCO, in which BAFS holds a 90% stake.

2. Please explain BAFS' pricing and cost structure.

BAFS has two different pricing and cost structures. At Don Mueang the pricing structure consists of a storage fee, hydrant fee, and into-plane fee which together are called the combined user fee (CUF), paid by fuel suppliers. At Suvarnabhumi, the pricing structure consists of a storage fee and into-plane fee.

Our major costs at Don Mueang are the hydrant pipeline rental and land rental charges that are about 30% of total cost, and also depreciation.

Given the shift of Thai Airways flights from Don Mueang to Suvarnabhumi our revenue has dropped drastically at Don Mueang and we are in the process of renegotiating this issue with AOT. However, THAI is still our client at Suvarnabhumi. For Suvarnabhumi, because of our huge investment in the pipelines, fuel storage and other equipment, depreciation represents 28% of our total costs with the remainder consisting of labour and the airport concession fee (ACF). The ACF represents close to 18% of our total cost at Suvarnabhumi and is linked to service volume.

3. Who are BAFS' customers?

Our customers are the oil trading companies, Thai Airways International, PTT, Chevron (Thailand), Q8 Aviation, Shell Thailand, Air Total (Thailand), Singapore Petroleum (Thailand) Co Ltd, BP Oil (Thailand) Ltd, ExxonMobil Aviation Inc and Bangchak Petroleum. Our top 10 airline customers are THAI, Thai AirAsia, EVA Airways, China Airlines, Emirates, Qantas, Cathay Pacific, Air France-KLM and Japan Airlines.FINANCIAL PERFORMANCE:

1. In March 2009, BAFS's management based its forecasts on Thai Airways guidance and provided guidance that uplifting volume would only drop by 2% this year. Given the drop of tourism by 50% in the first quarter, the continued political turmoil and the huge drop in global trade, is BAFS still confident in this target?

We are still confident in this target that uplifting volume of 2009 would only drop by 2% from last year as monthly actual volume growth from January to April was in line with our forecasts. Provided there are no further incidents in Thailand and/or globally, we forecast that uplifting growth would be in double digits in the last two months of 2009 when compared to 2008.MISCELLANEOUS:

1. What do you feel are the biggest risks facing BAFS's business today?

BAFS, as a company, is linked to Thailand's ability to grow as an international economy and an aviation hub for the region. Our risks are on two fronts: the global economic slowdown which, if continued and drawn-out, would reduce Thailand's aviation business and tourism would decline. Second, if there are continued domestic problems tourism would experience more pressure. As a company we have imposed strict cost-saving measures as of the end of last year in order to combat these factors.

2. Has the global slowdown or local political turmoil affected your business?

Yes, because of the global slowdown and local political turmoil, our uplift volume growth in November and December of 2008 dropped by 24% and 28% respectively. As we mentioned earlier, BAFS is prepared for these risk factors. We have put in place risk management policies by controlling expenses in every department and generating monthly financial reports to top management in order to maintain performance and maximise shareholder value.

3. Where do you see BAFS in five years from now?

In five years from now, BAFS will continue to provide services to AOT and ensure that Thailand can compete on a regional basis with our services. Our balance sheet will be stronger as our long-term debts would be slightly lower when compared to our equity base and we hope to continue to provide a consistent return on investment to our shareholders.

The Executive Q&A Series is presented by ShareInvestor, Asia's leading financial internet media & technology company, and the largest investor relations network in the region with more than 400 listed clients. The interview is conducted by Pon Van Compernolle, managing partner of GVC Capital, an investment advisory firm focused on small-mid caps in Thailand. For more information, e-mail pon@gvc-capital.com or howard@shareinvestor.com or visit http://www.ThaiListedCompany.com

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