Vietnamese airlines all are in need of timely support, says expert

As aviation is among the hardest-hit sectors by the Covid-19 pandemic, no air carrier is safe from the current crisis, but so far, only the national flag carrier Vietnam Airlines has received government support.

Airlines are struggling for survival. Photo: Pham Hung.

The National Assembly (NA) on November 17 approved the government’s proposal to help Vietnam Airlines ease the Covid-19 fallout.

Under its resolution, the NA agreed to allow the State Bank of Vietnam (SBV), the country’s central bank, to provide refinancing loans for Vietnam Airlines to maintain its operation.

At the same time, Vietnam Airlines, in which the state currently holds an 86.19% stake via the Commission for State Capital Management (CSCM), gets the permission to sell additional shares to existing shareholders to raise its registered capital. As such, the government would assign its investment arm State Capital Investment Corporation (SCIC) to buy Vietnam Airlines shares.

Vietnam Airlines previously proposed the government provide refinancing loans worth VND12 trillion (US$518.57 million) to the airline, including a loan of at least VND4 trillion (US$172.85 million) with preferential interest rates. The airline also suggested that it could sell stake worth VND8 trillion (US$345.68 million) to existing shareholders. In this case, state-owned SCIC could be the agency to buy this amount of shares.

The news immediately prompted other airlines to ask for similar support from the government.

Budget airline Vietjet suggested a refinancing loan worth VND4 trillion (US$172 million) with preferential rates in a three to five-year period for the aviation industry. Under its proposal, Vietjet would start paying debt and interest rates in the 2023-25 period, while new debts with maturity in 2020 are restructured to 2021, along with a 3% cut in interest rates for airlines’ loans.

The airline estimates under this current situation, the industry can only fully recover by 2023 at the earliest.

“Government support, in this case, is essential for airlines to overcome difficulties and maintain growth,” it noted.

Bamboo Airways also called for support packages and refinancing loans with interest rates of 2 – 3%; a 50% reduction of take-off, landing charges and navigation services fees; resuming international flights to countries with low Covid-19 risks; tightening the issuance of aviation license for new airlines until 2024; providing loans of 0% interest rates for airlines to pay workers’ salaries, among others.

Aviation expert Nguyen Thien Tong told Hanoitimes given the severe impacts to the overall industry as a whole, the government should provide equal support for all airlines. In fact, the losses private airlines face are much greater compared to that of Vietnam Airlines as they hold significant less market shares.

“The aviation market that we have today is largely thanks to private airlines,” he noted.

“The emergence of new airlines helped eliminate monopoly in the industry and made air transport more affordable to a wider public,” he stated.

“It would be unfair for others if only Vietnam Airlines can receive the state support, as others are also struggling for survival,” Mr. Tong asserted, adding it is their existence that is key for the development of Vietnam’s aviation industry.

 “A specific support measure should depend on revenue and market shares of each airline before the covid-19 pandemic, but the priority should be given to those generating profit at that period to reduce risks for the government and ensure efficiency of such support,” he stressed.

Dim outlook for the industry

In the first nine months of this year, Vietnam Airlines suffered an accumulated loss of VND10.5 trillion (US$453.71 million). As of September 30, the airline’s working capital was also significantly reduced from VND1.74 trillion (US$75.15 million) to VND802 billion (US$34.64 million). Additionally, its total asset value of VND76.45 trillion (US$3.3 billion) shrank to VND62.37 trillion (US$2.69 billion).

In case of Vietjet Air, from an annual average growth of 30% before Covid-19, the budget airline’s revenue plunged 70-75% during the nine-month period, resulting in a loss of VND2.4 trillion (US$103.2 million). To ensure liquidity, Vietjet Air was forced to sell its assets acquired in previous years, but are still in short of working capital to maintain operation.

A representative of Bamboo Airways said at the peak of the pandemic, 80-90% of its fleet was grounded. The airline estimated its loss is equal to 1/3-1/4 of Vietnam Airlines, despite its much smaller market share.