Vietnam Airlines set for partial privatisation in November

Vietnam Airlines said it will be partially privatised in November, part of a long-delayed drive to sell off the country's mostly inefficient state-owned enterprises.

Around 25 per cent of the national carrier will be sold in an Initial Public Offering (IPO), the company said in a statement released late Thursday (Sep 11). "Based on the equitisation plan approved by the Prime Minister, Vietnam Airlines will quickly implement steps to proceed with the IPO in late November 2014," it said.

Equitisation is the term Vietnam uses to refer to privatisation. State media reported that 20 per cent of the shares will be sold to strategic investors, some 3 per cent to airline staff and the rest to the public. The state will retain a 75 per cent controlling stake in the company, whose registered capital is roughly VND 14 trillion (US$661 million), the statement added.

Vietnam first began modest State-Owned Enterprise (SOE) reforms in the 1980s and there has been talk of privatising Vietnam Airlines since at least the mid-1990s. Prior attempts to sell off portions of the airline have been scuppered primarily by resistance from vested interests and a lack of political will. At least one prior attempt was abandoned due to the global economic crisis in 2008.

The overall process of SOE reform is mired in delays, experts say, as Vietnam's leaders must balance reducing inefficiencies in the SOE sector - which still account for some 35 per cent of Gross Domestic Product - with a general reluctance to cede control of key companies to foreigners.

Vietnam Airlines, a SkyTeam alliance member, remains the largest airline in the country, employing more than 10,000 people. It now owns more than 80 aircraft and will receive another 15 by the end of next year. SkyTeam is one of three major airline groupings, alongside Star Alliance and Oneworld. Other SkyTeam members include Air France, KLM, Alitalia and Delta.

In recent years Vietnam's flag carrier has faced stiff competition from low-cost VietJet Air, the country's first private airline which launched in 2011. VietJet has already cornered around 25 per cent of the domestic market - taking customers from Vietnam Airlines and rival low-cost carrier Jetstar, according to state media.

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VietJetAir nears huge Airbus order

Vietnam's first private airline, VietJetAir, said Wednesday it was close to finalising a US$6.1 billion Airbus order as part of an ambitious expansion that has shaken up the communist country's once tightly controlled aviation industry.

Like many sectors of the economy, aviation was for years dominated by state-owned flag carrier Vietnam Airlines until the government eased restrictions, paving the way for low-cost carrier VietJetAir to launch in 2011.

Amid growing demand for air travel both domestically and regionally, competition in the industry has recently heated up with fleet expansions, new routes and a planned stock market flotation for Vietnam Airlines later this year.

The Airbus deal is expected to be signed at the Singapore Airshow next month, VietJetAir managing director Luu Duc Khanh told AFP.

VietJetAir and Airbus signed a letter of intent in September for the purchase of 62 A320 medium-haul aircraft worth US$6.1 billion at catalogue prices and options for another 30.

The low-cost carrier, which currently serves 11 cities in Vietnam plus Bangkok, shot to prominence locally when it was fined for staging a racy in-flight bikini dance in 2012 to celebrate the launch of flights to Vietnam's popular tourist beach town of Nha Trang.

After two years of operation, it has cornered 25 per cent of the domestic market, taking customers from Vietnam Airlines and low-cost carrier Jetstar, according to state media.

"Competition in the market has sharply increased as VietJetAir has expanded their fleet and local routes," Pham Viet Thanh, chairman of Vietnam Airlines' management board, told the state-run news website VietnamNet this week.

Vietnam Airlines still had 61.4 per cent of the domestic market in 2013 -- down 7.3 percent year-on-year, the website said.

The government has recently announced plans for a slew of privatisations of state-owned companies, including Vietnam Airlines but has not yet provided specific details or a clear timeline.

VietJetAir's Airbus order -- which will expand its fleet ten-fold -- is central to the expansion plans of the fast-growing airline, which wants to launch routes to Seoul in South Korea and Siem Reap in Cambodia among other regional destinations.

But the company is a late entrant to the low-cost segment in Southeast Asia, behind Malaysia's Air Asia, Lion Air of Indonesia, Singapore's Tiger Airways and Jetstar of Australia -- many of whom are also expanding their fleets.

"There's something of a torrent of activity at the moment," said Peter Harbison, executive chairman of consultancy firm CAPA-Centre for Aviation.

Fear of missing out on new markets in the rapidly-growing Asian aviation sector is "a large motivator with these very rapid expansions," he said.

Because demand is growing and many of the aircraft ordered will not be delivered immediately "there is potential to absorb these but there is very much a rush at the moment," Harbison said.

He said potential for growth in low-cost carriers in the region was "mind blowing ... But that doesn't mean everyone who buys a lot of aircraft is going to make money."

VietJetAir's letter of intent was for 14 of Airbus' current single-aisle A320 model and 42 of the new A320Neo due to enter into service in 2015, which promises airlines considerably better fuel efficiency.

Another six planes will be the longer A321 version, which can be configured with up to 220 seats.

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