The Ministry of Transport (MoT) last week sent a document to the Ministry of Planning and Investment (MPI) with its comments on the investment adjustment dossier of Vietravel, which was revealed in February.

The most recent adjustment of the project included raising the charter capital to VND8.25 trillion ($358.7 million) from VND7 trillion ($304.3 million).

However, the financial capacity of the project is seemingly not on par with the actual plan. The MoT revealed in the document that the airline is struggling with cash flow to remain in operation and pay outstanding debts to suppliers.

“The MoT asks the MPI to collect relevant ministries and agencies’ comments on the investment resources of the project,” noted the document.

Vietravel on back foot to meet charter capital goals

In early February, due to the delay of payment for fuels, Vietnam Air Petrol Co., Ltd. (Skypec) asked Vietravel’s parent company to raise the bank guarantee limit in their contract to $2.2 million. Skypec emphasised that if Vietravel continued to violate the payment contract and let the debt exceed the guarantee limit, Skypec will suspend delivery of fuel and services for Vietravel flights.

Saigon Ground Services also asked Vietravel to pay the service fee corresponding to 7-10 days of operation in advance, as well as cut down the outstanding debts to less than $435,000 and level up the bank guarantee limit to $870,000.

The biggest creditor of Vietravel is Airport Corporation of Vietnam. As of early March, the airline owes about $5.2 million.

Previously, the Ministry of Finance (MoF) said that the total investment split into two phases does not match the total charter capital of $358.7 million in the plan. Thus, the ministry has asked Vietravel to explain the amount and clarify the capital raising plan. According to the financial statement, the owner’s equity in mid-2022 was $25.8 million.

“The contribution of shareholders is not enough as the plan suggests, and the performance of the business is not good enough to gain profit. So, the capital raising plan is seemingly impossible,” stated the MoF.

In addition to the capital raising plan, Vietravel also proposed to expand the fleet scale to three aeroplanes in the first year of operation, 25 by 2025, and 50 by 2030.

Explaining the business performance and the expansion of fleet scale, Vietravel chairman Nguyen Quoc Ky said, “For a new airline, investment in fleet development is an indispensable need for survival and development. Only when owning a large enough fleet can we gain profit.”

The MoT previously forecast the aviation market to receive 80 million arrivals this year, equivalent to the performance in 2019. However, international transport saw a slow recovery last year, equalling 27 per cent of 2019, and is expected to resume to 2019 levels in 2024 instead. The market could grow by 12-15 per cent per year during 2025-2030 to reach 180 million arrivals by 2030.

With those projections in mind, the MoT has asked Vietravel to study and consider carefully the expansion of fleet scale in line with market development, followed by adding a pilot plan for the rest of the decade.

“High-quality human resources for aircraft maintenance, safety, and aviation engineering are scarce, so Vietravel needs a detailed plan to approach and recruit human resources that match its financial capacity and the expansion of the fleet and general operations,” said Dinh Viet Son, deputy director general at the Civil Aviation Authority of Vietnam.