With continuous losses, does Vietstar Airlines have the capacity to "take off"?

After 5 years of operation, Vietstar Airlines has lost nearly 50 billion VND, owes nearly 300 billion VND to banks, and its equity does not meet the minimum requirements to establish an airline. In addition, the fact that this company has a shareholder who is a unit of the Ministry of National Defense also raises many legal issues, especially since this shareholder's capital contribution is defense land.

Airport terminal planning model drawing of Viet Star Company

Loss because of what?

Established in 2010 with a charter capital of 400 billion VND, Vietstar is the result of a joint venture between three organizations including HK Ngoi Sao Viet Company Limited contributing 262.7 billion - equivalent to 65% of capital and Ngoi Sao Viet Logistics Joint Stock Company contributing 37.5 billion VND, 25% of A41 Aircraft Repair Company.

According to the introduction on the website, Vietstar Airlines specializes in providing passenger and cargo transport services by air in the form of charter flights (transportation by small fixed-wing aircraft and helicopters to tourist areas or small islands that large aircraft cannot reach); providing ground services for aircraft, aircraft maintenance and repair services for customers who are airlines operating at Tan Son Nhat airport.

The advantages are not absent, but in reality, this company operates inefficiently and suffers continuous losses. As of December 31, 2015, Vietstar Airlines accumulated losses of 47.4 billion VND.

The financial report of this enterprise also shows that the most notable debt of Vietstar is the long-term loan from Eximbank with total outstanding debt as of December 31, 2015 being VND 290 billion - an increase of 40% compared to the beginning of the year. This is a loan under Credit Contract No. 2000-LAV-201405688 dated November 5, 2014 with an interest rate of 10.5%/year used to purchase fixed assets.

In 2015, "dreaming" of "taking off", Vietstar Airlines decided to increase its capital to 800 billion VND, the actual capital contribution of the new owner was 700 billion VND - the same as the minimum capital required to be granted an international flight license according to Article 8 of Decree 30/2013/ND-CP. The additional amount of 300 billion VND was contributed by Vietstar Logistics Joint Stock Company and Vietstar Airlines LLC, with General Director Pham Trinh Phuong as Chairman of the Board of Directors.

However, due to accumulated losses, the charter capital of 700 billion VND that Vietstar's investors contributed last year was also affected, leading to failure to meet the minimum equity standards of domestic and international airlines.

Need to clarify capital contribution with national defense land

A41 Aircraft Repair Company is a unit of the Air Defense and Air Force, with the great advantage of being the unit managing many defense lands at the country's key airports.

It is known that in the joint venture with Vietstar Airlines, A41 Company contributed capital in the form of land use rights in the aviation sector with a value assessed at the time of establishment of 100 billion VND. Thanks to the land capital contribution of A41 Company, this company has planned a rather grand Vietstar Airport Terminal.

There would be nothing to discuss if the land that Company A41 contributed capital was not defense land. Because according to the provisions of Article 6 of Circular No. 35/2009-TT-BQP on management and use of land planned for defense purposes, the use of defense land for economic purposes has 3 forms and there is no form of capital contribution.

Explaining more clearly from a legal perspective, Lawyer Dang Van Cuong, Chinh Phap Law Firm (Hanoi) said: In the case of capital contribution by Company A41, it is necessary to review the land allocation decision of the competent authority for that land lot, the plans, goals, and tasks of the unit related to land use and the land use right certificate to clarify the purpose of land use, only then will there be a basis to determine whether the capital contribution with land use right is legal or not.

This determination is extremely important because the land that the Ministry of Defense assigned to A41 Company is located in key locations, which is a huge advantage in the aviation business. However, A41's capital in this joint venture is only 25% and is converted into only 100 billion VND.

According to a report from the Ministry of Transport, Vietstar Airlines will participate in the domestic aviation market as a passenger and general cargo carrier, as well as the first specialized aircraft cargo carrier in Vietnam.

During the first 5 years of operation, this airline plans to operate a fleet of 3 Boeing 737/Airbus 320 aircraft. The airline has also presented an agreement to lease 3 Boeing 737 aircraft with an aircraft leasing company...

However, the question is why Vietstar Airlines, with an advantage in aviation infrastructure (having land to plan its own terminal), is still operating at a continuous loss. With weak capacity and insufficient equity capital to be licensed, can Vietstar Airlines really "take off" to "add a new star" to the aviation sky, adding more choices for passengers or just applying for a license for another purpose?

The public has every right to question Vietstar Airlines' licensing application, especially since, according to PLVN's source, Vietnam Airlines is currently contributing capital to Vietstar Airlines.

If Vietnam Airlines' capital contribution to Vietstar Airlines is completed, this airline is licensed and becomes the 5th airline in Vietnam and Vasco-SkyViet Airlines is also licensed as submitted by the Ministry of Transport, then Vietnam Airlines alone will operate 4 airlines, not including the joint venture in Cambodia, which is 5 airlines.

It should be added that after equitization, Vietnam Airlines is no longer a state-owned enterprise and has sold shares to foreign investors. If it invests in 5 airlines at the same time, will Vietnam Airlines be able to avoid financial, operational and management risks?

The Civil Aviation Authority avoids public opinion, "justifies" signs of massive application for aviation licenses

Faced with the phenomenon of "racing" to obtain aviation business licenses, PLVN reporters repeatedly scheduled meetings with the Ministry of Transport and the Civil Aviation Authority of Vietnam but did not receive cooperation or official information on the issues raised by the newspaper. "Dodging" PLVN Newspaper, on April 4, 2016, the representative of the Civil Aviation Authority, Mr. Vo Huy Cuong, "posted" in the industry newspaper and affirmed that "there is no rush to issue aviation licenses".

According to information in this newspaper, the Civil Aviation Authority said that it did not circumvent the law when it proposed that Vietstar Airlines be allowed to use audited financial reports to replace capital confirmation documents as prescribed in Article 9 of Decree No. 30/2013/ND-CP. This explanation is an excuse and not convincing, because the audit report cannot replace the bank's frozen money because that capital source has been used for other purposes and there will be no more investment source for aircraft and expenses for air transport business.

According to Lawyer Dang Van Cuong (Hanoi Bar Association): Legal capital must be expressed in Vietnamese Dong, foreign currency or real estate. The law does not stipulate a financial report to replace the capital confirmation document. Proof of capital in Vietnamese Dong or foreign currency must be confirmed by the Bank according to the provisions of Clause 1, Article 9 of Decree 30/2013/ND-CP mentioned above to comply with the law. If this enterprise does not meet the above conditions, the application will not be approved.

According to Vietnamese Law