Aviation has been designated as one of the top priority sectors for development by the Vietnamese government, since it is viewed as a prerequisite to rapid national economic growth. The aviation industry in Vietnam is under the principal jurisdiction and management of the Civil Aviation Administration of Vietnam (CAAV), a government agency reporting to the Ministry of Transport. In 2009, total airport through-put of passengers reached 17.5 million, an 8.4 percent increase compared with 2008, and this figure is expected to rise to over 20 million by 2010. The total throughput of air cargo was more than 346 tons in 2009 and should grow 10-14 percent each year on the average, reaching approximately 576,000 tons in 2010.
As of 2009 Vietnam Airlines (VNA) accounted for about a 40 percent share of international passenger traffic and 80 percent of domestic passengers, while Pacific Airlines holds roughly a 30 percent share of passengers carried on its main routes between Ho Chi Minh City, Danang and Hanoi, and makes up approximately 14 percent of the total domestic air travel market. As of 2009, there are 45 foreign passenger and cargo airlines with regularly scheduled flights to and from Vietnam. The country currently operates a network of 21 major civil airports including three international airports: The Noi Bai Airport in the north (Hanoi), Danang in the center and Tan Son Nhat in the south (Ho Chi Minh City). The Tan Son Nhat airport, with a new capacity of about 17 million passengers per year including a new terminal which became operational in September 2007, is the largest airport in the country, handling about 70 percent of the country's international passenger traffic. Many industry senior officials believe that the growth of the country’s aviation market is still very modest in comparison to other growing Asia markets like China and India. To achieve higher growth, Vietnam will need to expedite reforms and liberalization of the aviation sector.
Major Airlines in Vietnam
At present, Vietnam Airlines (VNA), Vietnam Aviation Service Company (VASCO), and Jetstar Pacific Airlines (JPA) are the three major air carriers in Vietnam.
Vietnam Airlines (VNA) and VASCO
VNA, the national flag carrier of Vietnam, was established as a state enterprise in April 1993 under the Civil Aviation Authority of Vietnam (CAAV). Vietnam Airlines Corporation was subsequently formed in 1996, after bringing together 20 service companies in the aviation sector. The company was then separated from CAAV and is now overseen by a seven-seat management board, members of which are directly appointed by the Prime Minister. As of August 2009, VNA and VASCO, a subsidiary of VNA operating short haul domestic flights, operate a fleet of 57 airplanes with an additional fourteen on order. The average age of the VNA fleet is 9 years as of August 2009. The airline ordered four Boeing 787-8 aircraft in 2005 to be delivered beginning in 2009 and ten Airbus A321-200s in 2004 for delivery between 2006 and 2009. Subsequently, it ordered 12 additional Boeing 787-8 aircraft in late 2007, as well as 10 A-350s and 10 A- 321s. It plans to use the new aircraft to expand its route network and replace some of the aircraft currently on lease in the fleet.
Today Vietnam Airlines’ network extends to 20 cities throughout the country and 44 international destinations in the USA, Europe, Australia and Asia (including code-share services). In 2006, after being awarded the IATA Operational Safety Audit (IOSA) certificate, a safety standard set by Aviation Quality Services (AQS), Vietnam Airlines joined the International Air Transport Association (IATA) as an official member. Vietnam Airlines, together with the Vietnam Aircraft Leasing Company (VALC) of which Vietnam Airlines was an initiator and founder, signed a purchase order of 12 Boeing B787s, 10 Airbus A350-900, 20 Airbus A321 and 5 ATR72-500 aircraft in 2007. Between 2008 and 2009 VNA and VASCO ordered 5 Boeing 787-8 aircraft and 6 Airbus 321 aircraft and signed an MOU with Airbus to plan purchasing four Airbus 380 aircraft. VNA and VASCO expect to receive a total of 36 new Airbus 321 and 21 Boeing 787-8 aircraft over the next several years. The airline is expected to reach 104 and 150 modern aircraft in 2015 and 2020, respectively.
Jetstar Pacific Airlines (PA)
Jetstar Pacific Airlines (formerly known as Pacific Airlines) is the second largest air carrier in Vietnam, having started operations in 1992 with VNA as the major shareholder (86.5 percent). It is the first joint stock airline formed in Vietnam following changes in the law to allow foreign investment in the country's airlines. In 2005, it narrowly escaped closure due to inability to pay its debts and continuous loss-making operations. By a decision of the Prime Minister of Vietnam, all of VNA's shares in the company were then transferred to the Ministry of Finance (MoF) and thereafter to the State Capital Investment Corporation (SCIC), a state owned company under MoF, for business and ownership restructuring.
On April 26, 2007, Australian airline Qantas acquired a 30 percent stake in PA for $50 million and became PA’s strategic partner. After this restructuring, SCIC continues to hold a 62 percent stake, Qantas 30 percent, Saigon Tourist Holding Corporation 7.53 percent, while the remainder is held by Tradevico (a company under the Ministry of Transport). Jetstar Pacific currently operates 5 Boeing 737 - 400 aircraft and one Airbus 320 -200 aircraft, and is moving to Airbus A320-200 aircraft in order to expand its network with more domestic and international flights into South East Asia. In the coming years, it is expected to add up to 30 Airbus aircraft. By 2014 Jetstar Pacific’s network will cover most countries in Asia.
Vietjet Aviation Joint Stock Company
In November 2007, the Vietnamese Prime Minister approved the establishment of the first wholly private airline in the country, Vietjet Aviation Joint Stock Company (Vietjet) with initial chartered capital of about $37.5 million. The founders and major shareholders of this company include T&C Holding, Sovico Group, HD Bank, and a number of aviation professionals. A former Technical Deputy General Director of VNA leads the company. Vietjet recently leased three Airbus A320s to start its first commercial flights sometime in 2010. The airline will first operate domestic flights from/to Hanoi, HCMC, Danang and several other tourist destinations and will expand into international routes in Asia.
Vietnam Aircraft Leasing Company
In December 2007, Vietnam Aircraft Leasing Company (VALC) was established with initial charter capital of $40 million by a group of major state owned enterprises including the Bank for Investment and Development of Vietnam (BIDV – 20 percent), Vietnam Airlines Corporation (23 percent), Petrovietnam (17 percent), Vinashin (11 percent), and Phong Phu Corporation (8 percent). VALC’s main business lines include aircraft leasing, air taxi services, airport operation, and other aviation services. In particular, the company plans to participate in the development of the Cam Ranh, Phu Quoc and Long Thanh Airport projects. One of the main reasons for the establishment of VALC is that VNA is facing funding problems in expanding its fleet and VALC is expected to help VNA overcome these challenges. VALC started operations in December 2007 by signing a $1.48-billion contract with Boeing to purchase eight B787-8 Airliners for delivery beginning 2016. The company will lease these aircraft to Vietnam Airlines upon receipt of the delivery. VALC plans to raise its charter capital to $200 million by 2014 and $1 billion by 2025.
Indochina Airlines Company
Indochina Airlines is the 5th airline in Vietnam, the second private airline operational in Vietnam. Indochina Airline sold its first tickets on November 12, 2008 and launched its first commercial flight from Tan Son Nhat Int’l Airport in Hochiminh city to Noi Bai Int’l Airport in Hanoi and Danang Int’l Airport on November 25, 2008. As of November 2008, the airline has 2 leased Boeing 737-800 aircraft. In December 2009, this airline closed its business after losing money heavily and could not afford to cover its daily operation costs.
In November 2008, the Vietnamese Prime Minister approved the establishment of the third wholly private airline in the country, Mekong Air with initial chartered capital of about $36 million. Mekong Air plans to use Canadian Bombardier Aircraft, which can carry 86-90 passengers, to fly from HCMC to Rach Gia, Phu Quoc and Can Tho twice a day.
Other Foreign Airlines
As of 2009, approximately 46 passenger and cargo airlines from 20 countries are operating scheduled international flights to Vietnam. Industry experts expect that about another 30 air carriers will enter the Vietnam market over the next ten years.
VNA Aircraft Maintenance Facilities
In 2009, two major commercial maintenance subsidiaries, namely A75 in HCMC and A76 in Hanoi merged into the Vietnam Airlines Engineering Company Ltd. (VAECO Ltd) with chartered capital of about $20 million and headquarter is at Noi Bai Airport, Hanoi.
The company focuses on performing both daily and periodic maintenance checks according to JAR/VAR-145 standards. Its Ho Chi Minh City facility mainly focuses on Boeing aircraft while the facility in Hanoi specializes in Airbus airliners. At present, Ho Chi Minh City and Hanoi facilities can carry out maintenance services at the following levels: F70 and ATR72 (Dcheck), A320 (8C-10Ycheck), B767 (Acheck), and B777 (2Ccheck).
In addition, VNA also seeks to establish a joint venture with a foreign company to provide aircraft maintenance, repair, and overhaul services to VNA’s fleet and other international carriers.
Due to its current limited maintenance and overhaul capabilities, VNA sends its aircraft for maintenance and overhaul to Air France, AMECO of China, China Airlines, Evergreen Aviation Technologies, GAMECO, Hong Kong Aircraft Engineering Co., Lufthansa AERO, MTU Maintenance Hanover, Royal Brunei Airlines, Safe Air of New Zealand, or TAT Industries of France. VNA also receives technical and maintenance assistance from Region Air of Singapore and Park Aviation of Ireland. At present, PA does not own any maintenance facilities but can conduct A-checks on their airplanes in house. However, C-checks must be done abroad and Singapore Technologies Aerospace is one of their key providers for maintenance services, spare parts and training of Vietnamese engineers.
Air Traffic Management
Vietnam’s flight information region (FIR) is divided into two areas, namely Hanoi and Ho Chi Minh City. Vietnam Air Traffic Management (VATM) with over 1,900 employees, is the state owned monopoly providing air traffic services to all flights in Vietnam’s FIR. Northern Region Air Traffic Services (NORATS), VATM’s subsidiary, covers FIR Hanoi and Southern Region Air Traffic Services, (SORATS), is in charge of HCMC. In total, VATM has two area control centers (located in Hanoi and HCMC), three approach control centers (in Hanoi, Danang and HCMC), 17 airport air traffic control towers, six radar stations, 16 satellite stations, 40 beacons, 20 VHF stations, and several digital microwave links. In addition, VATM has three other subsidiaries including Middle Region Air Traffic Services (MORATS), Air Traffic Command and Coordination (ATC&C), and Air Traffic Technical Services Center (ATTECH).
CAAV estimates that Vietnam would require about $15 billion in investment to achieve its development plan for the aviation sector by 2020. Of this, $8 billion will be needed mainly for aircraft fleet expansion, $5 billion for constructing and upgrading airports and the remaining $2 billion for airport operation and air traffic management.
At present, the government budget can only meet about 20 percent of the total investment required for airport development. Raising sufficient funds for this development is an immense challenge for Vietnam now and in the future. The plan for the period 2005 – 2010 calls for investment of more than $1.3 billion in airport modernization and expansion and rehabilitation in order to accomplish an efficient network of 20 airports in operation including projects such as Noi Bai (second terminal), Na San, Dong Hoi, Cam Ranh, Chu Lai, Lien Khuong, Con Dao, Phu Quoc (International), Can Tho, Ca Mau, and Rach Gia. During the period 2010 – 2020, several other airports will be constructed or upgraded including Long Thanh (International), Chu Lai (Cargo), Cat Bi (Hai Phong), Quang Ninh (International), Lao Cai, and Cao Bang. The lion’s share of the investment in airport projects is expected to come from Official Development Assistance (ODA) loans from foreign governments such as Japan as well as financing from the private sector.
Long Thanh, Chu Lai and Phu Quoc Airports are three key projects that are expected to be developed with investment from the Vietnamese government as well as the private sector. To develop these projects, the Vietnamese Ministry of Planning and Investment (MPI) has submitted proposals to the Prime Minister to seek foreign direct investment. If approved, foreign investors will be allowed to develop these projects under the form of Build-Operate-Transfer (BOT), BT (Build-Transfer), or Build-Operate- Own (BOO).
Air Traffic Management
Vietnam Air Traffic Management (VATM) will spend over $67 million on its 46 new and ongoing air traffic management projects. Funding for these projects comes mainly from VATM’s own budget accumulated from its business activities. Key upcoming projects to be undertaken by VATM include: ACC/Hanoi Project, Domestic Airport Air Traffic Management (ATM) Towers (for the following airports: Dien Bien Phu, Vinh, Phu Bai, Phu Cat, Dong Hoi, Chu Lai, Pleiku, Can Tho, Phu Quoc, Con Dao, Buon Ma Thuot), Noi Bai and Tan Son Nhat Air Traffic Management (ATM) Tower, and VATM Headquarters Building.
Air Fleet Development
According to its development plan to 2020, VNA plans to invest more than $8 billion in expanding and upgrading its aircraft fleet as well as other related facilities. Funding for aircraft fleet expansion mainly comes from the VNA and government budget and bond sales, as well as foreign commercial loans with sovereign guarantees.
According to VNA’s fleet expansion plan approved by the Vietnamese Prime Minister in October 2007, VNA’s fleet is expected to operate 60 aircraft by 2010, 85 by 2015, and 107 by 2020. Under this plan, over the period 2006 - 2015, VNA is expected to purchase 43 aircraft including 20 A321s (150 passengers), eight B787-8s (280 passengers), five ATR72s (70 passengers), and ten A350s (300 passengers).
American companies are highly respected in Vietnam as the world’s leading equipment manufacturers and service providers in the aviation sector in terms of advanced technologies, quality, and professionalism. In the above projects, American companies will find significant opportunities for providing architectural, engineering and construction services, and construction management services for airports and terminals. In addition, over the last few years American firms have sold a considerable amount of airport ground support equipment (GSE), equipment for passenger terminals, air traffic management systems, telecommunication systems, software, aircraft parts, training services, as well as aircraft maintenance and engine overhaul services.