VietNamNet Bridge – In order to keep periodic engine maintenance and implement the plan to charter and purchase more aircraft, Jetstar Pacific (JPA) needs some 55-60 million dollars. JPA commits to pay all the debts to Vinapco prior to July 31, said Le Song Lai, General Director of JPA, who is also the Deputy General Director of the powerful State Investment Capital Corporation (SCIC) which specializes in making investment in enterprises with state’s capital.
Could you please tell us about the business performance of JPA in 2010, and in the first months of the year? How have the happenings in Vietnam and in the world affected the airline’s operation?
In the whole year of 2010 and the first five months of 2011, domestic airlines, including JPA, have been facing a lot of serious difficulties and challenges.
As you may know, fuel always accounts for a big proportion, up to 50 percent, in the total expenses of JPA. Therefore, any fuel price fluctuations would influence the air carrier’s business. In 2010, JPA’s fuel expenses increased by 8.6 million dollars, or 21.5 percent, since the world’s oil price increased by 30 percent on average.
Meanwhile, the Vietnam dong has been depreciating against the dollar. In 2010, the dollar value increased by 14 percent over 2009, bringing the loss of 8 million dollars to the airline. Besides, the two-digit inflation and the sharp increases of charges and fees have also badly affected JPA’s business.
While the input costs increased significantly, airlines cannot raise the airfares. Though the airfare ceiling has been raised since April 2010, the current airfares are still much lower than the actual expenses. I know that all domestic airlines incurred losses on domestic air routes in 2010.
The situation has not been improved in the last five months, but it has even become worse, since the oil price stays firmly at high level of over 100 dollars per barrel due to the political uncertainties in the Gulf and North Africa.
As far as I know, JPA plans to purchase new engines and restructure business, which is believed to lead to financial problems. Could you please collaborate on this?
JPA plans to have five engines periodically maintained in 2011, which will cost over 10 million dollars. Besides, it will have to pay deposit to charter 10 A320s with the initial sum of 20 million dollars.
The air carrier is well preparing for the expansion of some international and domestic air routes which will be carried out right after it receives new aircrafts, slated for December 2011.
As such, the total sum of money JPA will have to pay in 2011 alone would reach 45 million dollars.
As I can see, JPA now needs capital very much to maintain business. How has the company’s board of management persuaded its shareholders to arrange such a huge sum of capital in the current difficulties?
Shareholders have reaffirmed their determination to build up JPA into a leading budget airline in Vietnam.
It is expected that by 2015, JPA will have a fleet of 15 new A320s, and JPA will receive four new aircraft each year in the period from 2012 to 2014. This will allows JPA to implement the plan to expand the air route network with 12 domestic routes and four international routes to regional countries.
Shareholders have approved the plan to issue new shares to existing shareholders and outside shareholders to raise the chartered capital.
The financial difficulties have led to Jetstar Pacific owing nearly 200 billion dong worth of fuel to Vinapco, which has threatened to collect air petrol money from JPA prior every flight (3.6 billion dong a day), if JPA cannot get the guarantee from SCIC or a credit institution prior to June 4? What will JPA do to settle the current problem?
As I said above, JPA is facing temporary difficulties due to many objective problems which are also the problems of many other companies. The JPA’s principle is that JPA must respect the provisions stipulated in the fuel supply contract it signed with Vinapco. As for the sums of money JPA pays late, JPA will pay interests in accordance with the laws.
JPA has sent a document to Vinapco, informing the debt payment process which has got the agreement from Vinapco. JPA commits to settle debts prior to July 31, and the normal payment will be resumed from August 1.
In the immediate time, JPA has accepted the request by Vinapco to make payment one day in advance for the flights of the next days.