The fact that the corporate value of financially troubled Pacific Airlines is estimated at US$167 million following its restructuring has surprised many since the figure was released by Singapore’s government-owned investment firm Temasek Holdings (Pte) Ltd.
Pacific Airlines is now making a profit said finance deputy minister Le Thi Bang Tam following the restructuring of Pacific Airlines since the indebted airline was put under special ministry supervision about four months ago. Losses had risen to about nine times equity in the ten years of operation.
Deputy finance minister Tam said that the finance ministry had applied special control measures on Pacific Airlines in the past four-months and reorganised the company board and stabilised operations and has dealt with the debt that nearly crippled the semi-private joint stock company which is owned 100% by other state-owned companies including Vietnam Airlines.
The ministry says the airline has restructured, is making an operating profit, paid off part of its debt load, balanced its accounts and invested in leasing more aircraft.
The Ministry of Finance a few months ago started the process of looking for foreign buyers to take an equity stake by inviting experts from leading finance consultant firms in Singapore and Asia to facilitate the restructuring of the airline in the next five years. Temasek Holdings of Singapore was the chosen by the ministry.
A restructuring outline was forwarded to the government in March. The proposal indicated strategy, business development plan, and commercial flight orientation on both domestic and international routes, and commitments of support from the government. Based on the proposal, Temasek Holdings assessed that the total net value of Pacific Airlines is US$167 million, including its intangible asset appraised value.
The figure is the total value of current value and added value of PA, said a source of Temasek. “The government or the finance ministry is unable on behalf of the airline’s shareholders pay off debts of this carrier. Given the current situation, it was not viable to put the company shares up for auction because the investors would find it very difficult to have any idea of the value of the company thus threatening the survivability of the airline,” said Le Thi Bang Tam.
According to negotiations on conditions, Temasek will inject some US$50 million equal to 30% of equity in Pacific Airlines, which is the legal limit for foreign ownership in state-run firms. Temasek has pledged to help Pacific Airlines deal with remaining debt arrears and join the company’s board to restructure the firm in a new model.
When Pacific Airlines becomes financially steady on its feet, more equity will be sold to investors through public auctions while the state represented by the finance ministry will remain in majority control.
But part of the deal is that the government will restrict the domestic airline market to just three local carriers, which are all state-owned—Vietnam Airlines, Pacific Airlines and Vasco.
Preparatory work has already been completed, said Pacific Airlines’s director general Luong Hoai Nam, and by the end of June, Pacific Airlines under the umbrella of Temasek will appear with a completely new corporate image. Pacific Airlines will turn into a value-based airline based on EasyJet in Europe, Southwest in US, Virgin Blue in Australia, and Valuair in Singapore.
In the first three or five years, Pacific Airlines operations and airplane maintenance will be undertaken by the foreign partner. If the deal does go through, plans are to open more domestic routes and flights to foreign destinations. Pacific Airlines will offer softer airfare structure to attract travellers and apply a flexible seasonal airfare schedule, said Nam. By doing so, many Vietnamese people will be able to afford to travel, Nam said. A plan of internet-based air ticket booking is expected to be launched some time in the near future.
“There will have no difference in government policy toward Pacific Airlines and Vietnam Airlines,” said deputy finance minister Tam.