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Vietnam aviation industry: foreign ownership to increase

Monday 06, 01 2020
Maximum ownership rate for foreign investors will be increased, which, in experts' opinion, will bring benefits to airlines that want to expand their business.
Vietnam aviation industry: foreign ownership to increase

Decree 89/2019/ND-CP amending and supplementing a number of articles of Decree 92/2016/ND-CP and 30/2013/ND-CP on business activities of the aviation industry officially took effect on January 1, 2020. According to the revised Decree, maximum ownership rate for foreign investors will be increased. This provision, in experts' opinion, will bring benefits to airlines that want to expand their business.

Increasing foreign ownership

Specifically, in Decree 89/2019/ND-CP, the maximum ownership ratio of foreign investors in airlines is increased from 30% to 34%. In addition, the minimum capital for airlines operating international routes with 10 aircrafts is reduced to VND 300 billion; that with 11 to 30 aircrafts is reduced to VND 600 billion and over 30 aircraft is reduced to VND 700 billion (previously, the amount was much higher, VND 700 billion, VND 1,000 billion and VND 1,300 billion respectively).

According to economists, the increase in the maximum ownership ratio of foreign investors will benefit airlines such as Vietnam Airlines (HVN), Vietjet (VJC) and Bamboo Airways after being listed as these firms can increase additional capital for business expansion. However, that the minimum capital for airlines is reduced, besides creating more favorable conditions for businesses who want to jump into this lucrative market, also indirectly creates a fiercer competition for market share.

According to the Vietnam Aviation Administration, currently, there are 3 airlines applying for licenses, including: Vinpearl Air, Viettravel Air and Kite Air. Specifically, Vinpearl Air has just been appraised and submitted to the Prime Minister by the Ministry of Planning and Investment. Previously, at the end of December 2019, the Ministry of Planning and Investment had also reported to the Prime Minister the results of the appraisal of Vietravel Air investment policy.

For airport operators such as the Vietnam Airport Corporation (ACV), according to Decree 89/2019, companies do not need to approve in principle from the Ministry of Transport when establishing businesses, and when transferring shares or capital contributions to foreign investors. Besides, the minimum required capital is VND 100 billion for both international and domestic airports while in the past, that for international airports was VND 200 billion.

According to Ho Chi Minh Securities Joint Stock Company (HSC), Vietjet Air will be the first enterprise to reach a new foreign room level as it will seek a strategic partner this year.

The State currently holds 86.19% of Vietnam Airlines capital while strategic foreign shareholder ANA Holdings (Japan) owns 8.77%, and other shareholders own the remaining 5.04%. The State is advocating divestment in Vietnam Airlines to 51%, which means it (through the State Capital Management Committee in enterprises) will sell about 35% of the capital.

Qantas Airways (Australia) presently owns 30% of Jetstar Pacific's capital, the highest level under current regulations. However, under the new rules, Qantas can increase its ownership at Jetstar to 34%.

Qantas Airways (Australia) presently owns 30% of Jetstar Pacific's capital

Bamboo Airways, owned by FLC Group, is going to conduct an IPO (initial public offering) with the goal of raising the capital scale to over VND 6,000 billion. With the new provisions of Decree 89/2019/ND-CP, Bamboo Airways will have more opportunities to attract foreign investors.

Caution needed

Assoc. Prof. Dr. Nguyen Thien Tong, Former Head of Department of Aeronautical Engineering, Ho Chi Minh City University of Technology said that it is necessary to have a strict control mechanism for foreign investors when their maximum ownership rates are increased to 34%. This is explained by the fact that aviation is a specific industry, giving foreign investors more ownership of unclear sources of money will negatively affect the sustainable development of the aviation industry as well as other related fields.

The representative of the Department of Transport (Ministry of Transport) believed that many new regulations relating to air transport business and airport business in Decree No. 89/2019/ND-CP, especially the reduced legal capital requirement, will create favorable conditions when applying for a business license in air transport.

One major point of concern is that Decree No. 89/2019/ND-CP is still quite strict. Accordingly, the age of used aircraft imported into Vietnam to carry passengers must be no more than 10 years from the date of release to the time of import into Vietnam under the purchase or hire-purchase contract; no more than 20 years from the date of release to the end of the lease. As for helicopters, they must be no more than 25 years from the date of release to the end of the lease.

For aircrafts transporting cargo, parcels and general aviation business, the prescribed age does not exceed 15 years from the date of release to the time of import under a purchase or hire-purchase contract and no more than 25 years from the date of release to the end of the lease.

The representative of the Department of Transport (Ministry of Transport) said that this is to ensure aviation safety and save costs for air lines.

>>> Read more: Vietnam’s FDI inflow reaching USD 32 billion

Source: vietnambiz

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