Pacific Airlines Director Luong Hoai Nam.

VietNamNet – With Pacific Airlines on the verge of bankruptcy, Luong Hoai Nam was appointed as the company’s director. A year and a half later, the firm is gradually recovering. 

A challenging opportunity 

A year and a half ago, Luong Hoai Nam left Vietnam Airlines’ Market Planning Department, which he had headed for 11 years, to assume responsibility for the restructuring of Pacific Airlines, previously under direct control of the Ministry of Finance. For Nam, this was a challenge and an opportunity to gain experience. However, upon taking on his new position, he quickly realized the task was bigger than he had anticipated. 

 “The company’s real problems were eight or nine times worse than I had been led to believe before I took over the restructuring. There were problems in almost all areas and divisions that required immediate rectification,” he said. 

The Ministry of Finance set lofty goals for Pacific Airlines’ restructuring programme. Mr. Nam’s tasks would be to stabilize and improve the effective of flying activities and services and try to bring the airline to the point of profitability, while in the meantime, improving its image and position in the marketplace. 

Nam has been given two years to realize the targets. “Specifically, we must change the company’s production and business models, restructure the organization, in terms of our workforce and infrastructure, and reorganize our flight strategies and technical service systems. After completing all these things, Pacific Airlines will be a totally new company,” he explained. 

It was clear to everyone in the Pacific Airlines organization that the company was losing money, but no one had a clear idea of why. Nam’s chief task was to perform a general check-up on the organization and assess the problems and possible solutions.  

Cost-cutting 

With 11 years’ market planning experience with Vietnam Airlines, Nam believes he has a good idea about which routes will bring profits. Early on, he decided to eliminate the Da Nang – Hong Kong route, because of its poor market potential. It was replaced two new routes linking Da Nang to Hanoi and HCM City. Neither route has turned a profit, yet, but Nam is optimistic that both show great potential.

The company also decided to increase the number of flights between Hanoi and HCM City from two or three a day to seven. “The demand for flights between Hanoi and HCM City is great, but with our meager flight schedule in the past, we could not exploit this need,” Nam said. 

Mr. Nam’s most significant contribution to Pacific Airlines since he took over is in cost cutting. With help from the Ministry of Finance and related ministries and sectors, the company was able to negotiate new aircraft leasing and technical maintenance service contracts that will help save the firm more than 100 billion VND ($6.25 million USD), each year.  

According to Nam, Pacific Airlines’ previous arrangements with aircraft leasers and maintenance providers were inappropriate for the company’s current position. Other re-negotiated service contracts will also help to save the firm an additional 20-30 billion VND ($1.25 million – 1.865 million) each year. Taking into account that the company’s total turnover last year was 730 billion VND ($45.625 million), these savings are remarkable. 

“For any enterprise, spending control is the number-one mission. No company can do business effectively when it can’t control its spending and can’t construct a purchasing plan and establish a negotiation process to prevent losses,” Nam emphasized. He continued, “That’s one of the reasons that Pacific Airlines fell into the difficult situation that it did.” 

Building trust in the future 

For any company facing the difficulties that Pacific Airlines has in the past few years, maintaining the trust of staff and their commitment to the future is of paramount importance. An employee who has lost faith in his or her organization begins to think only in terms of self-interest and puts the good of the company to the back of his or her mind. As such, one of Nam’s most important tasks is earning back that trust. 

In organizations all over the world, restructuring programmes often lead to massive dismissals of employees and reductions in salaries to bring down costs. Rather than going this route, Nam pressured the Ministry of Finance to actually increase workers’ wages. According to him, “In the specific case of Pacific Airlines, lay offs and salary cuts could have meant the end of the company.” 

Rather than letting anyone go, Nam re-structured the workforce. Some administrative staff were retrained to work other jobs that Pacific Airlines previously had to sub-contract from Vietnam Airlines. The company has also closed its service line, which had helped to control service quality and oversee problems, such as misplaced baggage. 

“Managing an airline is no different from managing other businesses. To operate effectively, the machinery must be compact. A system that is too cumbersome not only wastes money but also experiences frequent jams in progress and efficiency,” he concluded. 

A belief in success 

With only a half a year remaining in his mandate, Nam is confident that, with the assistance of related sectors and ministries, Pacific Airlines will achieve the lofty targets assigned by the Ministry of Finance.  

With a current seat occupancy rate of 70-75%, Pacific Airlines is approaching its goal of having 75-80% of seats filled on every flight. Total revenue for 2005 was estimated at 830 billion VND ($51.875 million), up by 100 billion VND ($6.25mil) over 2004. 

Some routes are still losing Pacific Airlines money, but according to Nam, this is because the company has not reached the optimal cost level. He believes that Pacific Airlines can and will further reduce spending. 

Within three years following the restructuring period, Pacific Airlines should begin to operate stably, show sustainable growth and ultimately be in a position to list its shares in both domestic and foreign stock markets. 

The Ministry of Finance is negotiating the sale of a number of Pacific Airlines shares to Singapore’s Temasek. The results of Nam’s restructuring programme will impact heavily on the negotiated price. 

(Source: TBKTSG)