Vietnam’s flag carrier Vietnam Airlines will receive a total of 4 trillion dong ($174.8 million) from three Vietnamese banks. The airline has been struggling to cope with the financial impact of the ongoing pandemic. The loan will be used to keep the airline out of bankruptcy but it might not be enough.
According to reporting by Reuters today, three banks will lend interest-free loans over the next month. The three banks are Vietnam Maritime Commercial Joint Stock Bank, Saigon – Hanoi Commercial Joint Stock Bank, and SeABank.
In total, the three banks will hand over 4 trillion Vietnamese dong ($174.8 million) to save Vietnam Airlines from bankruptcy. While this might sound like a lot, the airline recorded a net loss for the first quarter of this year of just under 5 trillion dong ($217 million). So, this loan amount won’t even cover the first quarter.
According to experts from the Vietnamese Ministry of Planning and Investment, the airline could have a net loss of 10 trillion dong ($435 million) for the first half of the year.
With such huge losses, the airline needs more than a loan to get back on its feet. The plan is for the airline to raise its own capital by issuing new shares to its current shareholders before the end of the year.
Furthermore, Vietnam Airlines announced earlier this month that it would sell 11 Airbus A321s to help improve cash flow issues. Although the airline has said it is selling the aircraft to modernize its fleet, there is little doubt that financial issues had a lot to do with the decision. The aircraft for sale are just over 12 years old.
Facing legal action
The banks’ decision to lend money to the airline is slightly surprising to some. In recent weeks reports suggested that banks were unwilling to lend money to the airline. According to local media outlet Dealstreetasia.com, the airline was behind on repayments, and creditors considered legal action to get the airline to pay up.
There is a chance the banks had their minds changed by the Vietnamese government. The government owns 86% of the airline. The government had promised a bailout package to commercial banks but was slow to pay up.
Banks have been asking the government to restructure debt payments and make changes to interest fees to help prop up banks and other businesses. The result is that the government-owned airline is being propped up by banks that are relying on government loans themselves.
Currently, Vietnam Airlines’ worries are closely tied to the ongoing COVID-19 outbreak. It looks as though the airline won’t recover until case numbers go down. Unfortunately, cases are on the rise in Vietnam. Bank loans may not be enough to tide the airline over until it can unground aircraft and get back to a regular schedule.
What do you think of Vietnam Airlines’ situation? Do you think the airline can recover? Let us know your thoughts in the comments.