Uneven path for AirAsia’s investment in Vietnam

Asia’s largest low-cost airline group AirAsia is jumping hurdles on the path to investing in VietJet Aviation Joint Stock Co. (VietJet Air) to help this local carrier operate as a successful budget carrier as Vietnam Airlines has protested against this venture.
Local media reported that Vietnam Airlines had appealed to the Prime Minister not to endorse AirAsia’s investment in VietJet Air under any form with an aim at establishing VietJet AirAsia alleging that this joint venture is just the low-cost carrier’s move to tap the growing domestic aviation market of Vietnam.
The Government has swiftly responded to the issue by saying that civil aviation cooperation with foreign partners needs approval from the Prime Minister.
AirAsia’s plan in Vietnam
The initially successful purchase of a 30% stake in VietJet Air makes AirAsia happy as its efforts over the past years to invest in a Vietnamese airline has borne fruit. The group confirmed that Vietnam’s Ministry of Transportation approved the share acquisition on February 9.
“AirAsia is proud to announce its acquisition of a 30% equity stake in VietJet Air to establish a Vietnam-based joint venture low-cost airline which will carry the name VietJet AirAsia,” AirAsia said in a recent statement.
VietJet Air stated on its website that the ministry gave the nod to the first amendment to the aviation business license of VietJet Air on February 9, constituting an approval of the joint venture between VietJet Air and Air Asia.
The first private airline licensed in Vietnam said earlier the Hanoi Department of Planning and Investment had granted an amended business license for VietJet Air, acknowledging AirAsia as a founding shareholder of the airline.
AirAsia said VietJet AirAsia would open Vietnam as another gateway in the ASEAN, as well as support its expansion of operations in the region, increasing intra-regional connectivity, and turn the region into a tourism hub.
VietJet AirAsia will make Vietnam AirAsia’s fourth country base, following Malaysia, Thailand and Indonesia. AirAsia said VietJet AirAsia was finalizing details for routes, frequencies and launch of domestic and international flights.
The Civil Aviation Administration of Vietnam (CAAV) clarified that AirAsia’s investment in VietJet Air was merely the stake transfer of a major shareholder of the local carrier to the leading low-cost airline in Asia.
Bui Minh Dang, deputy director of CAAV’s Transport Department, told the Daily last week that AirAsia’s acquisition of a 30% stake in VietJet Air was in accordance with existing regulations that allow a single foreign investor to own up to 30% of a Vietnamese civil aviation firm.
Dang said VietJet Air was preparing to commence first commercial service in May and that there was no plan between VietJet Air and AsiaAsia to set up a new airline except their involvement in VietJet Air.
VietJet Air confirmed that AirAsia was just one shareholder of the local airline and that all strategies would be decided by a majority of the latter’s board of directors. The local shareholders include Sovico Holdings and HD Bank.
Reasons to protest
In its recent report submitted to the Prime Minister, Vietnam Airlines claims that with the 30% stake acquisition, AirAsia will be able to join the board of directors at VietJet Air and to manage this carrier’s plans to be approved as the group wants.
Vietnam Airlines also reckons that new local airlines will be seriously affected if many foreign low-cost airlines are allowed to exploit the domestic and international segments of Vietnam’s aviation market and that these carriers seek to buy domestic air traffic rights at low prices.
Domestic air traffic rights are not allowable to any foreign airline as ascertained by the CAAV, but aviation regulations permit foreign investors to hold up to a 49% stake of a local airline without clarifying whether they should be in or outside aviation.
Qantas is a case in point as this Australian group has bought a 27% stake of Jetstar Pacific and plans to increase its ownership to 30% this year as part of a strategic partnership deal with State Capital Investment Corp. (SCIC), the biggest shareholder of the local low-cost carrier.
Jetstar Pacific now operates in line with the low-cost model of Jetstar Airways under Qantas. So, VietJet AirAsia will be the direct competitor of Jetstar Pacific if it turns into reality.
Jetstar Pacific remains silent about VietJet AirAsia, but advocates that healthy competition would result in sustainable development of the local aviation market.
Experts say the acquisition by AirAsia will speed up VietJet Air’s take-off that this VND600-billion carrier has not been able to realize since December, 2007 when it became the first private airline in Vietnam to get a license from the Transport Ministry.
In addition to capital, VietJet Air will be tapping the expertise of AirAsia and this Malaysia-based group’s successful operation and marketing of low-cost flights.
VietJet Air said the venture with AirAsia would use VietJet AirAsia as its trade name in accordance with Vietnamese regulations.
“VietJet Air JV with AirAsia is a well-balanced combination of the management system, technical expertise, long-term experience in the airline industry, crew and international brand of AirAsia, and the financial strength, as well as Vietnamese market insights of VietJet Air,” VietJet Air said.
VietJet Air said the VietJet AirAsia venture would provide more options to meet the air travel needs of people in Vietnam and in the region. This point is encouraged by airlines experts, who said AirAsia’s investment in VietJet Air would spark Vietnam’s growing aviation market and balance competition after Indochina Airlines suspended its domestic services because of financial difficulties.
Competition would make airfares affordable for more Vietnamese and help them enjoy better services as AirAsia CEO Tony Fernandes told the Daily last year. He said the group was always seeking opportunities to engage in a civil airline venture in Vietnam.
The launch of VietJet AirAsia services would allow more Vietnamese people to board planes as AirAsia’s “Now everyone can fly” slogan says.
AirAsia must remember the lesson of the airline JV, with shipbuilding giant Vinashin, partly because of the protests by Vietnam Airlines and Pacific Airlines (now Jetstar Pacific), though the two sides inked a letter of intent in Malaysia in late August of 2007.