Solutions needed for Vietnamese aviation sector

US$250 billion to recover

In Vietnam, in May and June alone, the revenue of Vietnam's aviation industry decreased by nearly 90% compared to the same period in 2020 and nearly 100% compared to 2019.

To maintain minimal operations during the pandemic, firms have to spend over VND100 billion per day. As of June 2021, short-term debt of three airlines (Vietnam Airlines, VietJet Air and Bamboo Airways) is estimated at VND36,000 billion, of which Vietnam Airlines' debt is VND20,000 billion.

Understanding the difficulties of the domestic aviation industry in the face of the impacts of the COVID-19 pandemic, a series of policies on tax and fee exemptions and reductions have been directed by the Government to the ministries and sectors to support airlines.

The airlines have more resources to overcome the difficult period. However, only Vietnam Airlines (Vietnam's national carrier) received a relief package worth VND4,000 billion as part of a support package of VND12,000 billion approved by the National Assembly in December 2020 in the form of refinancing.

Even though they have tried to get over difficulties and balance their spending, private airlines have all run out of cash. Access to credit from commercial banks and other financial solutions is difficult at this time without a special mechanism.

Speaking at the online seminar organized by Vietnam Economic Review (VnEconomy) on August 2, Mr. Bui Doan Ne, Vice Chairman and General Secretary of the Vietnam Aviation Business Association (VABA) said that some countries such as France, the Netherlands, Singapore have launched support packages for airlines through solutions such as loan guarantees or direct loans to save airlines on the brink of bankruptcy.

Many recent calculations show that airlines need about US$250 billion in support from the government to get through the difficult period and recover.

It is necessary to have a clear policy so that banks can rely on it to create conditions for aviation enterprises to access loans. Photo: VNA.

How can Vietnamese aviation be rescued?

As an important economic sector, the aviation industry urgently needs a special support policy from the Government. According to Mr. Bui Doan Ne, the aviation industry has had many solutions to save itself since the pandemic.

Enterprises begin to realize the essence and transform the business form most optimally. Difficulties or potential risks for businesses are reported to the Government. But the problem is actually very difficult.

In a recent request to the Ministry of Planning and Investment, VietJet and Bamboo expect to be allowed to apply the refinancing mechanism from VND4,000 to VND5,000 billion, the same term as the credit granted to Vietnam Airlines.

Also according to Mr. Bui Doan Ne, for the Vietnam Aviation Business Association, we recommend a preferential credit package; the interest rate is reduced by about 4% compared to the commercial loan interest rate, and term of 3-5 years for firms to maintain resources.

In fact, banks have capital and businesses need loans. However, to know how to borrow to ensure safety, it is necessary to have a policy mechanism. The policy must be clear so that banks can rely on it to create conditions for aviation businesses to access loans. The aviation sector also has international competition, if businesses cannot recover quickly and seize the opportunity soon, they will be at a huge disadvantage.

Also according to Dr. Nguyen Sy Hung, former Chairman of Vietnam Airlines, currently, the State holds a controlling stake in Vietnam Airlines (86%). Therefore, solutions for Vietnam Airlines are difficult to apply to private aviation enterprises. However, with the role of management, the State can create a legal corridor, mechanisms, policies, decrees and circulars to support private enterprises to access loans from banks. Accordingly, to support aviation businesses, I think it is necessary to focus on three main groups of solutions.

Firstly, SCIC can invest in private airlines, which can be considered an effective investment later on.

Second, aviation enterprises need to restructure industries and means. Specifically, for aviation the fleet accounts for an extremely large proportion of capital.

Third, when approving the aviation strategy in general as well as for each airline, the State needs to have a long-term overview, to be on the lookout for bad scenarios, but not to be in a passive position; when it happens, solutions to fix laws and circulars will be looked for.