The Twin Impacts’ Heavy Aftermath and Vietnam Airlines’ ‘Major Surgery’

The Double Impact Wipes Out Achievements

According to the International Air Transport Association (IATA), after the COVID-19 pandemic, Vietnam ranked first among the 25 countries with the fastest-growing domestic aviation markets. The Vietnam Aviation Authority predicts that the Vietnamese aviation market will fully recover to pre-pandemic levels by the end of this year, in line with the recovery trend in the Asia-Pacific region.

However, Vietnam’s aviation authorities believe that the industry’s recovery is facing obstacles. The double impact of the COVID-19 pandemic in 2020 and the unfavorable geopolitical situation has halted growth and left severe consequences for global aviation, including Vietnam.

Le Hong Ha, CEO of Vietnam Airlines, said that in the first nine months of this year, the company’s consolidated revenue reached nearly VND 85,500 billion, an increase of more than 24.64% compared to the same period in 2023. Consolidated after-tax profit reached over VND 6,263 billion, largely due to debt forgiveness for Pacific Airlines and improved operational efficiency.

However, according to Mr. Ha, due to the severe impact of the COVID-19 pandemic and global economic and political fluctuations, the airline faces challenges. As of December 31, 2023, the accumulated losses of the parent company and consolidated financial statements were VND 32,522 billion and VND 41,057 billion, respectively, with negative equity of VND 8,378 billion and VND 17,026 billion, respectively.

“If we don’t quickly improve our financial capacity and implement more robust and decisive solutions to seize opportunities in the upcoming era of national growth, the national carrier risks insolvency and capital shortage. In the long run, this will weaken our ability to cope with risks in the production and business environment, erode our competitiveness, and diminish our position in the Vietnamese and regional aviation markets,” said Mr. Ha.

Self-Rescue and State Lifeline

Vietnam Airlines’ CEO, Le Hong Ha, said that the airline has implemented several self-rescue solutions under the Comprehensive Restructuring Plan for the 2021-2025 period. “From 2020 to 2023, Vietnam Airlines reduced and saved a total of VND 18,118 billion in expenses. We negotiated a rent reduction of over VND 16,000 billion from 2021 until the end of the lease and deferred rent payments of over VND 8,300 billion from 2020 to 2026. We have also canceled or postponed the delivery of new aircraft to align with our business needs. In addition, we have restructured debts worth VND 6,140 billion to ease our financial burden,” said Mr. Ha.

According to the CEO, the reorganization of the apparatus and workforce has been carried out rigorously, saving VND 2,444 billion in labor costs. The company has also liquidated or sold and leased back aircraft and engines and divested capital from Cambodia Angkor Air, generating approximately VND 2,346 billion in cash flow and VND 634 billion in income.

To overcome the challenges in the current phase, the CEO of Vietnam Airlines emphasized the need for state support as the largest shareholder. Investing in Vietnam Airlines will enable the airline to compete with international rivals and expand Vietnam’s presence on the global aviation map.

“It is especially important to allow Vietnam Airlines to apply special mechanisms and appoint the company as the investor for projects within the complex of specialized aviation service works at Long Thanh International Airport. This will ensure that Vietnam Airlines has a base at Vietnam’s largest airport, fulfilling crucial national tasks such as military transportation, security, and special flights. This also aligns with the mission of Long Thanh International Airport…” explained Mr. Ha.

Referring to the proposal to extend the refinancing loan under Resolution 135/2020/QH14, the CEO of Vietnam Airlines explained that despite the implementation of self-rescue measures and the mobilization of resources from divestment and equity issuance, the company’s financial situation has not fully recovered, leading to difficulties in repaying debts on time in 2024. Therefore, approval from the National Assembly to extend the loan is necessary to maintain the company’s operations and liquidity stability.

The national carrier needs the government to obtain approval from the National Assembly to allow Vietnam Airlines to offer additional shares to existing shareholders to increase its charter capital. Based on careful calculations, Vietnam Airlines determined that it requires approximately VND 22,000 billion in additional capital through the issuance of new shares to existing shareholders.

The Role of State-Owned Enterprises as a Pillar

Recently, at a workshop on “Promoting the Role of State-Owned Economy in Vietnam’s Socialist-Oriented Market Economy – The Reality of Vietnam Airlines,” organized by the Communist Party of Vietnam Journal, Mr. Nguyen Duc Kien, former head of the Prime Minister’s Economic Advisory Group, cited information from IATA that, since the beginning of 2020, many countries have provided economic rescue packages to restore the operations of their national carriers. The government acts as both a major shareholder and a market regulator.

As of August 2021, approximately US$229.7 billion has been provided by governments to support the aviation industry in various forms. Thanks to this support, many airlines have avoided bankruptcy, but their financial health has been severely affected after more than two years of COVID-19. Debts have increased from US$430 billion at the end of 2019 to US$550 billion at the end of 2020 and continued to rise to US$650 billion in 2021, creating significant financial pressure for airlines in the post-pandemic recovery phase.

In Vietnam, according to Mr. Kien, Vietnam Airlines is currently the government’s special tool for managing and regulating the aviation industry, in line with the orientation of the state-owned economy as an essential material force for the state to stabilize the macro-economy and promote economic development. State-owned enterprises (SOEs) are the tools of the state-owned economy.

“In the next phase, one of the key national projects to enhance Vietnam’s competitiveness is the Long Thanh Airport. Through investments in this key national project, the state, using SOEs as tools, will create new production capacity for the economy and foster a competitive business environment in the aviation industry among enterprises with different ownership forms,” said Mr. Kien.

However, Mr. Kien emphasized that Vietnam Airlines needs to have a comprehensive restructuring plan and gradually develop according to the holding company model, an upgrade from the current corporation or general company model. With this new model, SOEs will be forced to improve their operational efficiency in a highly competitive environment, and the state will exercise its ownership rights like other private owners, instead of applying policies that give preferential treatment to SOEs.

The former head of the Prime Minister’s Economic Advisory Group also emphasized that, along with the comprehensive restructuring, Vietnam Airlines should focus on developing two segments to meet the diverse needs of the market: low-cost aviation for short-haul flights and premium aviation targeting high-income passengers and businesses at overseas sales points.