VietNamNet Bridge – In order to have money for the 100 Airbuses, VietjetAir will have to seek capital from different channels, including the export credit financing, commercial loans from foreign banks or IPO (initial public offering).
VietJetAir makes huge Airbus order
VietjetAir, the Vietnamese private airline on September 25 signed a memorandum of understanding (MoU) with the world's leading aircraft manufacturer Airbus for an order of 100 aircraft of different types.
The order includes the purchase of 92 A320 family aircraft and the lease of eight more from third party lessors.
VietjetAir’s Managing Director Luu Duc Khanh admitted the affair requires a huge sum of capital, but the air carrier has found the solutions to arrange enough capital for the order already.
Khanh said the capital would be sourced from different channels, including the governments’ programs on financing aircraft purchase deals, the loans from foreign finance institutions, and the IPO to mobilize capital from the public.
In general, foreign finance institutions and banks only satisfy 20 percent of the total capital needed for the aircraft purchases. Khanh affirmed that VietjetAir had working sessions with many institutions and got the confirmation on the financing before VietjetAir signed the MOU with Airbus.
Declining to reveal the interest rates of the loans, Khanh said the interest rates are relatively competitive. The aircraft to be purchased by VietjetAir in the contract would be mortgaged for the loans. All of the aircraft are brand new with the expected operation duration of 20-30 years, while VietjetAir plans to borrow capital for 12 years at maximum.
VietjetAir has also contacted the governments’ financing channels, which, according the managing director, showed very promising results. The financiers have good impressions on VietjetAir’s business performance.
The first private air carrier in Vietnam got the pretax profit of VND120 billion in the first seven months of the year, which Khanh said, went beyond the air carrier’s expectations.
When starting up, VietjetAir hoped it would make profit after three years of operation. Providing the first commercial flight in December 2011, the air carrier just hopes to break even in 2013.
Airbus, the aircraft manufacturer, has given active support to VietjetAir in seeking the partners who can provide loans. The air carrier would also make IPO overseas to seek capital.
“We are confident that we can arrange enough capital to successfully fulfill the contract,” Khanh said.
Finance experts all commented $9.1 billion is an overly high amount of capital if compared with the potentials of a private enterprise like VietjetAir.
A banker in HCM Cit said the air carrier will has to pay more than $1 billion, or VND21 trillion a year, which is a big amount of money if noting that its stockholder equity is VND800 billion.
In principle, in order to borrow money from foreign finance institutions, borrowers have to prove their financial capability. For example, in order to borrow $1 billion, the borrower has to have $100 million at least in reciprocal capital.
Meanwhile, the loans’ interest rates would also be a big problem. The current lending interest rates in the international market are “not low” as said by the banker, while the profitability of the airlines in Vietnam is “not high.”
A finance expert in HCM City said the most important thing VietjetAir needs to do to be able to borrow capital is to prove the efficiency of the aircraft purchase project. For example, the carrier plans to open new air routes, show the expected number of passengers and expected turnover.
To prove the capability to pay debt, VietjetAir will not only have to use the aircraft as collateral, but it will also needs some third parties or commercial banks to come forward and guarantee for the loans. Meanwhile, it is really very difficult to look for the third parties capable to guarantee for such big loans.