Aviation sector seems wings

illustration photo

Late last month, the Ministry of Transport (MoT) submitted to the government a draft decree to supersede Decree 76/2007/ND-CP dated May 9, 2007 on aviation transport business and general aviation operations.

The draft decree will directly affect eight business entities licenced to operate aviation transport and general aviation services and eight individual and corporate entities having valid aviation operation certificates.

Of the draft’s 30 clauses distributed in four parts what grabbed aviation businesses’ special attention relates to regulations pertaining to capital conditions towards foreign- invested air carriers which are left void in current aviation business.

Relative to this sensitive issue, in the draft’s clause 11, the MoT presented the government two scenarios. In the first scenario, foreign-invested air carriers must satisfy the conditions that the holding of the foreign party must not exceed 49 per cent of total chartered capital and that of a foreign individual or corporate entity must not exceed 30 per cent and a local individual or corporate entity must hold a leading stake in the chartered capital.

In the second scenario, foreign invested air carriers must satisfy the conditions that the holding of the foreign party must not exceed 30 per cent of total chartered capital and that of a foreign individual or corporate entity must not exceed 20 per cent and a local individual or corporate entity must hold a leading share in the chartered capital.

The second scenario will help minimise the practice that firms open air carriers just to sell stakes to get marginal profits like in the case of Indochina Airlines and Trai Thien air cargo, according to the MoT.

In respect to regulations on giving a stock bonus or stock transfer to foreign investors under direct investment model, the draft regulated that stock transfer or giving stock bonus could only take place two years after the foreign-invested airlines come into service and must abide to regulations in Clause 11.

“If foreign investors hold a ruling stake, parallel to the state losing an effective control over the airline this could trigger transfer pricing cases like in other different fields,” said MoT Minister Dinh La Thang.

The MoT also suggested hiking aviation transport firms’ legal capital to avoid risks. Accordingly, to jump into aviation, airlines operating up to 10 aircraft must have at least VND700 billion ($33.3 million) legal capital against former level of VND500 billion ($23.8 million) if they want to fly outbound and having at least VND300 billion ($14.2 million) if they want to fly local routes against VND200 billion ($9.5 million), according to the draft.

Besides, the airlines must have at least two aircraft for commercial aviation transport and general aviation services and the number of leased aircraft including pilots must not exceed 30 per cent of their fleet by the end of the third operational year.  

Besides stringent requirements, the draft envisages easing firms’ burdens when giving birth to a new process under which investors can draft plans to open airlines and seek licences without the need to showing business registration certificates and put legal capital at banks as currently the case.