Pacific Airlines risks closure over debt, cash flow crisis

Pacific Airlines, a Vietnamese low-cost carrier, is at risk of insolvency and termination of operations owing to a severe financial crisis, cash flow constraints, and substantial overdue debts.

Parent Vietnam Airlines, listed on the Ho Chi Minh City Stock Exchange (HoSE: HVN), disclosed the Pacific Airlines situation in a document released prior to its shareholder meeting on Tuesday. The corporation is expected to report the information at this meeting.

HVN is seeking partners to engage in Pacific Airlines' restructuring, yet the process has been hampered by red tape mandated by existing legislation for state-owned enterprises, it claimed.

The national flag carrier last year divested a 35% stake in Cambodia Angkor Air. The first phase of the transfer contract had been completed in the first quarter of 2022.

The pandemic has placed a significant burden on the aviation sector, with total revenue plummeting by 80% year-on-year in 2021. Vietnam Airlines reported only 489,000 international and 14.6 million domestic passengers, down 98.6% and 61% from the pre-pandemic level in 2019.

The airline stated that it believed the sector would only recover to pre-pandemic levels in 2024, assuming Covid-19 is under control and no new strains emerge.

Vietnam Airlines once successfully avoided delisting from the HoSE by increasing its chartered capital by VND8,000 billion ($344 million) through the issuance of 800 million shares to its existing stakeholders last September. The State Capital Investment Corporation spent nearly $296.6 million to acquire the airline’s shares.

The carrier expects revenue of $1.95 billion and loss after tax of $401.5 million in 2022, with a total investment cost of $16.2 million. It expects to transport only 17 million passengers, and 271,200 tons of cargo this year.

Vietnam Airlines intends to resume sales of six ATR72 and nine A321 CEO aircraft that were halted in 2021 due to unfavorable conditions, possibly through a sale and leaseback (SLB) arrangement. Another two VN-A353 and 354 would also be sold via SLB following their conversion into cargo aircraft.

Hiroyuki Kometani, 57, is expected to be nominated to Vietnam Airlines' board of directors in the upcoming shareholder meeting, replacing Tomoji Ishii, who resigned at the end of March 2022. He is currently ANA Holdings' senior executive vice president and director of corporate strategy and future creation.

Vietnam Airlines, with the state being the majority shareholder, currently holds a nearly 99% stake in Pacific Airlines after taking over a 30% stake owned by Qantas Group in the first quarter of 2022.

Pacific Airlines currently has a charter capital of VND3,522 billion ($151.5 million), ranking fourth among Vietnamese airlines.