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Aviation sector: opportunities still can be found on the severe land   2012-02-06 - VietNamNet

The aviation market in Vietnam is considered the “severe land,” because, besides the national flag air carrier Vietnam Airlines, other airlines have been dissolved or taking loss. However, opportunities always exist in difficulties.

Opportunities remain… opportunities

In 2011, the aviation industry served 23.6 million passengers, witnessing the growth rate of 13.6 percent – a satisfactory figure in the context of big difficulties.

Experts believe that by 2015, the figure would rise to 34-36 million, while the average growth rate would be 11-13 percent per annum. By 2019, 52-59 million passengers would be served by the air carriers in Vietnam. Meanwhile, cargo transport would reach 850-930,000 tons by 2015 and 1.4-1.6 million tons by 2019.

The year-on-year growth rate has prompted investors to set up airlines in Vietnam. Besides Vietnam Airlines and Jetstar Pacific, the market welcomed some other private air carriers including Indochina Airlines, Air Mekong. Most recently, Vietjet Air has also taken off.

However, despite the great potentials, the aviation market remains a severe land for private airlines. Indochina Airlines stopped operation just after one year of operation, while it is too early to say if Air Mekong and Vietjet Air can survive. Trai Thien Air Cargo could not take off, while Jetstar Pacific has been incurring loss.

In foreign investors’ eyes, opportunities still exist

It is clear that in Vietnam, the demand is still higher than the supply. Therefore, in theory, investors still can see the opportunities in the market.

Vietnam’s aviation industry’s scale is still considered “modest” if compared with other regional countries. Every year, 60 million people travel by air in Thailand. Meanwhile, in Malaysia, there are 8 commercial aircrafts for every one million people. The figure is 15 aircrafts in Australia, while it is just 0.7 in Vietnam.

How open the door to foreign investors will be?

Though the Vietnamese sky has opened for private and foreign investors, to date, Qantas, which is holding 27 percent of the stakes of Jetstar Pacific remains the only foreign investor in Vietnam.

In the last few years, Air Asia and Singapore Airlines once conducted some negotiations to purchase the stakes of domestic airlines, but no deal has been made.

The allowed maximum foreign ownership ratio in an air carrier is always a “sensitive” issue in negotiations. This is the biggest barrier in the negotiation for the open sky agreement between the US and EU. At present, the US does not allow the foreign ownership ratio higher than 25 percent, while Brazil 20 percent. The limit aims to protect domestic airlines, while foreign investors would not be interested in making investment with low ownership ratios.

The Ministry of Transport has submitted to the government the draft document on the foreign investment in the aviation sector, suggesting two options.

In the first option, the foreign investors must not hold more than 49 percent of the chartered capital of the airlines, while one individual or one foreign legal entity must not hold more than 30 percent. One Vietnamese individual or legal entity must hold the biggest chartered capital.

In the first option, the foreign ownership ratio must not be higher than 30 percent.

Meanwhile, an expert from Vietnam Airlines said that the 30 percent ownership ratio is higher than that applied by other countries in the world, which is really unfit to the Vietnamese fledgling aviation industry.

Once foreign investors have 30 percent of stakes, they would have the right to veto the decisions made by the shareholders’ meeting which would have direct impacts on the domestic aviation market.

Therefore, it would be better to reduce the limit to 25 percent and stipulate that a foreign airline must not hold more than 10 percent of the chartered capital in a foreign invested airline in Vietnam.

According to the Ministry of Justice, choosing one of the two options will still depend on the policy to develop civil aviation. It is necessary to answer the question whether Vietnam wants to attract more capital or wants to effectively control airlines.

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