Airlines spent big money to upgrade fleets

>>VietJetAir orders 62 Airbus A320 jets, takes options on 30

In May 2011, the national flag air carrier Vietnam Airlines got the loans worth $457 million to buy 8 Airbus 321-315s. These included the package worth $400 million financed by HSBC and Citi under the support of European export credit guarantee institutions, led by Euler Hermes, a German export credit insurance group, and the commercial loan worth $57 million syndicated by HSBC and DBS.

From late 2012 to April 2013, Vietnam Airlines signed two credit contracts on the $200 million loan from Vietnamese Eximbank, which the air carrier uses to buy 8 Boeing 787s (some of which would be delivered in May 2015) and 4 Airbus A321s.

Vietnamese air carriers not only order popular and small size aircrafts, but they also plan to use super-airplanes manufactured by both Airbus and Boeing, including Boeing 787 Dreamliners, A350 and A380, a part of their fleet expansion plans.

Smaller air carriers which fly on some specific routes also consider upgrading the fleets by buying more aircrafts. Ha Dung, the owner of Indochina Airlines, which had to shut down due to the big debts in 2009, once said he reached a deal on the purchase of 10 Boeing 737-800s in October 2008.

In early 2013, Air Mekong announced the 3-month suspension to restructure the fleet. At that time, the airline used Bombardier CRJ900 which has the capacity as half of A320, but has the same chartering fee.

Bombardier CRJ900 can only serve short distance flights, which means they cannot provide direct flights from Hanoi to HCM City. As the aircrafts have to land halfway, it takes passengers 20 minutes more to fly from Hanoi to HCM City.

Therefore, Air Mekong has decided that it needs to buy or charter new aircraft, possibly A320s, which have brought high effects in the Vietnamese market

Most recently, the public was stirred up by the information that the private airline VietjetAir decided to spend more than $9 billion to buy 100 Airbuses. The amount of money would be sourced from VietjetAir own capital, the initial public offering (IPO) the air carrier plans to make, from bank commercial loans and the loans guaranteed by the government, and from Airbus’ partners.

An expert said the air carriers made reasonable decisions when thinking of expanding the fleets right now. The stiff competition among airlines happens not only on air routes, but on every flight. The more competitive the airlines want to be, the more airlines they need to buy.

He also said the competition would bring benefits to the market, because airlines try to provide best possible services at the lowest possible costs.

A report showed that in Malaysia, there are 7 aircraft for every one million people. The figures are 2.5 in Thailand, 1.4 in the Philippines. Meanwhile, in Vietnam, every one million people has approximately one aircraft.

“Vietnam needs to have many more aircraft in order to narrow the development gap between Vietnam and the world,” the expert said.

He went on to say that budget airline would be the future of the domestic air transport. Budget airline services now account for 35 percent of the domestic market share, while the proportion is expected to increase to 60-65 percent.