Rescuing the aviation industry: Support with conditions

Cutting costs

Assessing the status of Vietnamese airlines, Assoc. Prof. Dr. Nguyen Khac Quoc Bao, Director of the Institute of Financial Technology, Ho Chi Minh City University of Economics, said that the prospects of the aviation industry were currently very uncertain. Aviation might continue to be gloomy, but it was possible that in April and May 2022, the pandemic would gradually be forgotten, becoming a normal seasonal flu, meaning the recovery of the aviation industry would improve.

However, we also needed to look more broadly in terms of the national budget and economy as a whole. If Vietnam Airlines and other airlines wanted to access the support money, they must obey conditions.

Accordingly, enterprises must balance their own finances, clean up some financial items, such as cutting costs and especially salary and labour costs. With Vietnam Airlines (VNA), it was necessary to have a plan for staff reduction. In addition, firms must cut unnecessary expenses, sell assets, liquidate projects, divest subsidiaries that do not play a prerequisite role. In fact, private airlines had actively implemented solutions to cut costs and restructure investments, so they were still profitable in 2020.

“In addition, airlines need to accelerate the digital transformation process, apply science and technology, innovate to improve service quality, operational efficiency and long-term prospects. And there are plans in the medium and long term, anticipating the recovery. Airlines must show that this is a serious strategy for the aviation industry to take off forever,” Assoc. Prof. Dr. Nguyen Khac Quoc Bao proposed.

Besides having to maintain activities such as maintenance and aircraft rental, airlines also have to bear additional costs of anti-pandemic measures. Photo: VNA

Need to open the bank "corridor"

Commenting on the support for Vietnamese airlines, according to Dr. Can Van Luc and the Research Team, the Government should direct relevant agencies and units to ensure on schedule and closely supervise, be transparent in disbursing a preferential loan package of VND4,000 billion and solutions to increase charter capital of VND8,000 billion for VNA as per Resolutions of the National Assembly and the Government.

At the same time, consider and have a suitable and feasible support plan for private airlines (support loans with interest rates of about 3-4% per year compared to commercial loans), loan term from 1-2 years.

Consider allowing SCIC to invest capital in the form of shares and divest when the enterprises are stable. Consider reducing some appropriate taxes and fees (in addition to the implementation of Resolution 52 of the Government and Circulars 03 and 04 of the State Bank).

Referring to support conditions, Dr. Can Van Luc and the Research Team said that in order to receive support, the Government and related management agencies should require and enforce regulations that aviation firms must meet short-term and long-term conditions, especially when these conditions helped them and the whole industry improve competitiveness and catch up with international aviation trends. Accordingly, the commitment to retain employees, restructure operations, use environmentally friendly fuels as recommended by IATA, innovate governance, improve operational efficiency and competitiveness.

According to Dr. Nguyen Quoc Hung, General Secretary of the Vietnam Bankers Association, currently all airlines had stopped operating or were operating insignificantly, with no revenue, limited revenue or business losses, production and business plans certainly were not efficient, so there was almost no chance to access bank capital.

“At present, if airlines, especially private airlines, do not borrow capital to continue operations such as maintenance, aircraft rental, they will be in financial trouble. I know that there is an airline with enough collateral, wants to borrow money to pay salaries, pay maintenance costs and rent aircraft, but credit institutions do not dare to lend,” Hung said.

According to Mr. Nguyen Quoc Hung, especially for the banking industry, Circular 03 might need to continue to be revised, otherwise it would be difficult for airlines to access. Because, with the current uncertain situation of the pandemic, and the deadline for debt restructuring coming, as long as it was converted to bad debt, the loan door would automatically close.

With the current loan access regulations, most airlines are not qualified. Therefore, the Government needs to propose to the National Assembly to issue a special resolution on this issue to remove borrowing barriers.

Therefore, Mr. Hung said that, first of all, the Vietnam Aviation Business Association should evaluate the very important role of the aviation industry, both the state-owned and private airlines. From there, highlight the difficulties and current situation of the aviation industry, especially after the ongoing fourth wave of the Covid-19 pandemic, and he emphasized that the intervention of the State was required.