The government has planned to increase foreign shareholding in Vietnamese airlines in a move to seek more investment to meet the country’s rapidly growing air transport demand.
Under the latest draft decree submitted to the government recently, which revises Decree 92/2016/ND-CP and Decree 30/2013/ND-CP on aviation transport business, the Ministry of Transport proposed lifting the foreign shareholding ratio in Vietnamese airlines from the current 30 percent to 34 percent. It was different from the previous draft, which proposed to increase the rate to 49 percent.
According to the ministry, the 34 percent new rate will be sufficient to draw foreign investors’ interest while still creating a favorable environment for local firms to develop under the principle of „Vietnamese individuals/entities holding major stakes and effectively controlling business operations.“
Earlier, the Tourism Advisory Board and the Private Economic Development Research Board also proposed the government to lift the cap, saying that Vietnam should develop the aviation sector with the aim of turning tourism into a spearhead economic sector.
According to the boards, the tourism sector sets to receive 17-18 million foreign tourists and 82 million domestic visitors by 2020, but the targets is being hindered due to the underdevelopment of the local civil aviation sector.
Meanwhile, the International Air Transport Association estimated that between now and 2020, Vietnam’s passenger transportation is expected to rise by 16 percent annually, and from 2020 to 2030, by 8 percent. Cargo transportation will increase by around 18 percent until 2020, and 12 percent between 2020 and 2030. The growth will make Vietnam become the world’s fifth fastest-growing aviation market by 2035.
This rapid growth has put a strain on the airport infrastructure for the past year and the government has been seeking more private investment to help the aviation industry grow sustainably.
Currently, Vietnam’s aviation industry has three carriers – Vietnam Airlines, Jetstar Pacific JSC and VietJet JSC. However, the three carriers have different opinions about the rate of foreign shareholding in their businesses. While VietJet JSC wants to lift the rate to 49 percent, Vietnam Airlines and Jetstar Pacific JSC expect the rate to be kept unchanged at 30 percent.
As for VietJet, its Managing Director Luu Duc Khanh expected the increase of foreign shareholding will not only boost the healthy performance of aviation transport firms through the application of modern management formats by foreign investors, but also prove the Vietnamese government’s open-door policy through allowing more foreign capital injection into the aviation sector which is capital-intensive and requires governance expertise.
Several ASEAN economies have raised their foreign ownership limit in the aviation businesses, with Thailand and Indonesia to 49 percent and the Philippines to 40 percent, Khanh said, adding if Vietnam continues keeping the rate below the level applied in other regional countries, this could result in an imbalance between market entry conditions and investment environment openness, which will make it more difficult to attract foreign capital flows into the aviation transport sector.
Besides, Khanh said, limiting foreign investors‘ legal ownership in Vietnamese airlines might lead to investors resorting to other transaction methods to raise their stake in these airlines, making it more complex to control foreign investment in local airlines.
Meanwhile, Vietnam Airlines and Jetstar Pacific, which currently have Japan’s ANA Holdings and Australia’s Qantas as foreign shareholders, respectively, argued that once the foreign ownership limit is loosened to over 35 percent, foreign investors would have the right to veto important resolutions at the general shareholders’ meetings under the Enterprise Law, making it more difficult to govern the activities of local airlines.