Vietnam Airlines searches for long-haul companions

The market is eagerly anticipating national flag carrier Vietnam Airlines’ initial public offering

The public is curious about what the potential strategic partners would gain from teaming up with the domestic market’s main flight provider.

Vietnam Airlines has so far kept the thinking behind decisions on choosing strategic investors close to its chest.

The dominant domestic flight provider recently finalised a detailed process on selecting foreign strategic investors which was submitted to the Ministry of Transport (MoT) - for approval, fulfilling the prime minister’s commitment, that a sale of a stake to foreign and domestic investors would occur before March 9, 2015.

In parallel to hosting road shows in Hanoi and Ho Chi Minh City slated this late October to promote the upcoming initial public offering, almost three weeks ago the carrier kicked off the process of selecting strategic partners, which would last for six months, through sending brief information summary about the company to potential investors.

According to Vietnam Airlines’ president Pham Ngoc Minh, several foreign investors have expressed interest in becoming the company’s strategic partners.

Minh said the investors would be classified based on their final tender offers in respect to the value and the volume of stake they would hold in the airline; the potential investors would include both airline businesses and financial organisations.

“Our approach in finding strategic investors is that these investors need to accompany us in the long-haul focusing on promoting our aviation core values,” said Minh.

According to a source from the MoT, despite holding a maximum 20 per cent stake, the strategic partners could still play an important role in governing the parent company Vietnam Airlines in the post-equitised period.

According to appraisals by Vietnam Airlines’ consultant firm – the Bank for Investment and Development of Vietnam Securities Company (BSC), the expansive air route network Vietnam Airlines has developed over nearly two decades is an intangible asset, and also the company’s greatest appeal to investors.

Positioned mid-way to Northeast Asia, Southeast Asia, Europe, South Pacific and China, Vietnam could be seen as a gateway to a range of regions.

By the end of 2013, the carrier operated an international network consisting of 52 routes to 29 destinations in 17 countries and territories, and a local network of 39 routes to 21 destinations.

Another significant advantage lies in the airline holding one of the world’s youngest fleets.

Its current fleet of 82 aircraft will be joined by new state-of-the art A350-900s and B787-9s from next year which will help bolster its competitiveness while slashing operating costs.

Vietnam Airlines was the second airline in the world to use A350-900s that can save up to 25 per cent of fuel over most commercial jets.

“Over the last 20 years, we have witnessed the remarkable development of Vietnam Airlines, with its rapidly growing network and investment in a modern fleet of aircraft. As a member of SkyTeam, Vietnam Airlines is making its mark globally,” said Tony Tyler, CEO of the International Air Transport Association (IATA) at a Hanoi workshop this August.

IATA also believes Vietnam has the potential to become the world’s third fastest growing aviation market and the robust development of the tourism sector would act as major income source and growth engine to spur Vietnam’s aviation transport sector development.

Experts assume that Vietnam Airlines charm also lies in its pole position in the domestic aviation market as by the end of 2013, the company held more than 50 per cent passenger transport market share, and 63.2 per cent market share on local passenger routes.

“Despite facing fierce competition from low-cost VietJet, Vietnam Airline’s pole position in local route passenger transport is unlikely to change in the near future as the company, apart from acting as a major shareholder in budget carrier Jetstar Pacific, possesses complete logistics services that keep reporting high profitability,” said an aviation expert.

Vietnam Airlines will list based on chartered capital of VND14,101 billion ($671 million) after being equitised, equivalent to more than 1.41 billion shares with a par value of VND10,000 per share.

The state will maintain a 75 per cent stake with just 20 per cent will be sold to strategic investors.

A meagre 49 million shares, equivalent to 3.465 per cent, will be set aside for public auction, with the remainder offered as incentives for the company’s employees and the members of its trade union.