Can Vietnam Airlines Survive The Financial Turbulence As It Faces Insolvency?

Refinancing measures, which include restructuring non-core investments and selling new shares, have been delayed, resulting in a catastrophic scenario that has been referred to as a "financial crisis."

Vietnam Airlines passenger jet. Photo Credit: Nhac Nguyen/AFP/Getty Images

The national carrier, Vietnam Airlines JSC, is facing a severe financial crisis, with collapse looming as early as July unless the payback deadline for a government-backed loan is extended, the government has disclosed. According to a Bloomberg report, refinancing measures, which include restructuring non-core investments and selling new shares, have been delayed, resulting in a catastrophic scenario that has been referred to as a “financial crisis.”

Delays in receiving regulatory permissions

Regulatory hold-ups exacerbate the airline’s financial problems. The corporation has made little progress towards finishing its refinancing efforts, even after commercial banks provided low-cost loans of four trillion dong (S$213 million), which the central bank refinanced at 0% interest in 2021. The situation has been evaluated by the economic committee of parliament.

Government intervention

In order to prevent bankruptcy, the government has suggested to the parliament that the loan repayment terms be extended until December 31, 2027. Vietnam Airlines will have the extra time to stabilise its operations and reorganise its finances with this extension. In order for the airline to get through its current financial difficulties, the planned expansions are essential.

Financial goals and challenges

Vietnam Airlines hopes to turn a 4.2 trillion dong profit this year, even with the bleak forecast. This ambitious goal follows the airline’s 2023 substantial loss of 5.6 trillion dong. Chairman Dang Ngoc Hoa underlined the airline’s emphasis on reorganising its capital, investment portfolio, organisational structure, and assets.

Strategic reforms

Comprehensive corporate governance improvements are necessary for Vietnam Airlines to recover. The airline hopes to improve both its operational effectiveness and financial stability by concentrating on these measures. It is anticipated that the restructuring initiatives will improve the company’s investment portfolio, cut down on wasteful spending, and streamline operations.

According to The Investor Vafie Magazine, the Vietnamese government has requested parliamentarians to consider suspending repayment of VND4 trillion ($157 million) in loans to state-owned Vietnam Airlines in order to alleviate its financial troubles.

The loans were part of a refinancing package offered to credit institutions by the State Bank of Vietnam for the national flag carrier.

Urgent call to action

Vietnam Airlines is in a dire state, and bankruptcy is imminent if nothing is done right now. The parliament now has the responsibility of determining whether to approve the suggested loan repayment extensions, which will determine the airline’s future. Whether Vietnam Airlines can weather the financial storm and generate a profit again will depend on the outcome of this decision.