What does the 'rescue' of Vietnam Airlines reveal?
The national airline of Vietnam finally saw "the light at the end of the tunnel" when the National Assembly agreed with the Government's proposal for solutions to help Vietnam Airlines overcome difficulties caused by the Covid-19 pandemic.
In the resolution of the 10th session, the 14th National Assembly approved two options. Firstly, the State Bank of Vietnam refinances and extends no more than two times for credit institutions (excluding those under special control) to allow Vietnam Airlines to borrow additional capital to serve production and business activities.
A Vietnam Airlines flight from Alaska brought Vietnamese citizens back to their home country in May. Photo: Ted Stevens Anchorage Airport, Alaska
At the same time, Vietnam Airlines is allowed to offer additional shares to existing shareholders to increase its charter capital. The Government will assign the State Capital Investment Corporation (SCIC) to buy shares in Vietnam Airlines on behalf of the Government under the right to buy shares of state shareholders in the mode of transfer of rights to buy. This investment is rated in Group A projects.
According to the proposal of Vietnam Airlines, the Government as the owner of the state capital refinances the carrier with VND12 trillion, including at least VND4 trillion of loans with a preferential interest rate for 3 years, and issues shares to existing shareholders to increase capital for the remaining VND8 trillion (through SCIC).
Thus, the solution package approved by the National Assembly is based on mechanisms and policies, and is not funded directly from the state budget. It helps relieve the concerns about saving or not saving the national airline.
Going bankrupt: crime against the nation
Many people may raise this question: Does the support package for Vietnam Airlines cause inequality and discrimination against other businesses that are also suffering from the impact of the Covid-19 pandemic?
Economist Nguyen Dinh Cung, a member of the Prime Minister's economic advisory group, said: “As the state owner holding a controlling stake of up to 86% in Vietnam Airlines, the government has to perform the responsibility for its investments."
VN1 crew before departure on a mission to bring Vietnamese citizens home during the Covid-19 pandemic in May. Photo: Vietnam Airlines
Since its establishment, Vietnam Airlines has operated profitably. In the 2010-2019 period, this group paid to the state budget VND44.9 trillion, including VND30.5 trillion in the period 2015-2019 after its equitization.
According to this expert, Vietnam Airlines is a good business, the leading airline in Vietnam, with good competitiveness. "For such a good business in such an important industry, why does its owner - the government – let it to go bankrupt or sell it? If it happens, it is a crime to the country," Cung said.
In the absence of solutions to solve its problems, Vietnam Airlines would lose solvency, leading to bankruptcy, causing huge consequences: all state capital invested in this group would be lost; Government-guaranteed aircraft loans would be required by creditors to be paid by the Vietnamese Government; domestic commercial banks would unlikely recover over VND8.1 trillion of loans to this firm; thousands of workers would lose their jobs. All of these would adversely affect the economy and society. The country would lose its national airline.
Therefore, the State as the owner of the state capital in this firm should take measures to protect the safety of its capital, and at the same time ensure benefits for other shareholders and employees and maintain stability of economic activities in general.
Previously, the Government issued a resolution and reported these solutions to the Politburo and the Politburo agreed on the policy with the proposals. The Politburo assigned relevant bodies to coordinate and perform these solutions to assist Vietnam Airlines to overcome difficulties.
That is why the Government and the National Assembly have created a separate mechanism for the national airline.
It is forecast that the world aviation industry will still face difficulties as the epidemic is still active in many countries. It is expected that this year Vietnam Airlines will lose VND14 trillion.
The purpose of using loans for Vietnam Airlines is to offset urgent liquidity. To have a source of payment for this loan, it will have to restructure production and business activities, restructure assets, sell aircraft, and divest capital in some subsidiaries. In any case, Vietnam Airlines and also the SCIC have the responsibility to maintain, preserve and develop such financial resources.
In the resolution approved on November 17, the National Assembly also requested to strengthen inspections, audits and supervision to ensure the implementation of regulations. This must be done to revive the national airline sustainably, and avoid collapse.
The State Bank of Vietnam would provide refinancing loans for Vietnam Airlines to maintain current operation.
Vietnam Airlines Group, listed as HVN on the HCM Stock Exchange, earned nearly VND24 trillion (US$1.04 billion) in total consolidated revenue in the first nine months of this year, marking an estimated loss of VND10.75 trillion,