Mon. Jan 18th, 2021

HANOI — The National Assembly of Vietnam is set to deliberate a 12 trillion dong ($520 million) rescue of cash-strapped flag carrier Vietnam Airlines, a package in which the state would underwrite the majority of a capital increase and state lenders would offer soft loans.

The rescue package comprises a capital increase of 8 trillion dong plus 4 trillion dong of soft loans.

The government plans to underwrite 85% of the issued shares through the State Capital Investment Corp., a holding company of state-owned companies, according to the agenda issued on Wednesday by the National Assembly.

The rescue plan will be deliberated during the remaining two working days of the current National Assembly session, which will wrap up on Tuesday. Details are to be worked out during deliberations.

Vietnam’s State Capital Investment Corp. is said to be ready to buy the new shares if lawmakers greenlight the plan.

Vietnam Airlines is listed on the Ho Chi Minh City Stock Exchange, with the state controlling 86.19% of its shares and Japan’s ANA Holdings, parent company of All Nippon Airways holding 8.77% as of 2019.

Regarding the new share issue, 85% would be equivalent to 6.8 trillion dong. The remainder would be left to be picked up by existing investors, including ANA Holdings, a local analyst told Nikkei Asia.

However, with weak demand for air travel persisting, ANA Holdings expects to post its worst-ever net loss of 500 billion yen ($4.74 billion) for fiscal 2020. 

The Japanese airline operator, which once signaled its support of the rescue plan, is likely to take part in the share issue to maintain its ownership ratio.

Another analyst said government-guaranteed bond issuances also have been discussed. Such a support measure could lead to 10 trillion dong worth of corporate bond issues, revenue from which would be used for aircraft through 2025.

Vietnam Airlines is expected to end 2020 with a 15 trillion dong deficit. It also could face a cash deficit of some 16 trillion dong as Vietnam struggles to reopen international airports amid the resurgent COVID scourge.

CEO Duong Tri Thanh in July told the government that the airline would have difficulty sustaining its business without 12 trillion dong in emergency loans by the end of August.

Vietnam Airlines reported a loss of 10.7 trillion dong in the first nine months of this year. Trinh Hong Quang, Vietnam Airlines’ deputy director, said in a meeting earlier this month that the company is trying to keep losses to less than 13 trillion dong this year but expects similar hemorrhaging in 2021 if international aviation fails to recover.

For the nine months, the carrier’s operations generated a negative cash flow of 6.2 trillion dong, a reversal from a positive cash flow of 7.8 trillion dong for the year-earlier period, according to the company’s January-September financial report. Total debt now stands at 35 trillion dong, an increase of more than 3 trillion dong from the beginning of the year.

More recently, Vietnam Airlines has taken out more than 6 trillion dong in short-term loans.

Vietnam Airlines has faced multiple barriers this year in its quest for additional support. The Management and Use of State Capital Law, for instance, allows the state to invest in four essential sectors; aviation is not among them. This is why lawmakers must approve the rescue plan, according to experts.

The assembly will also discuss reducing domestic airlines’ environment tax by up to 70% for 2021. It has already been reduced by 30% for taxes accrued from August through the end of the year.

By Bureau