Freed Qantas duo highlights perils of doing business in Vietnam

They were two ambitious managers sent to the outer reaches of Qantas’s empire. Their job was simple: to help turn a small, loss-making airline in Vietnam into a profitable offshoot of Qantas’s no-frills Jetstar brand that would become central to its expansion into the lucrative Asian market.

Daniela Marsilli first moved to Vietnam’s bustling financial capital of HCM City in 2007 with her husband, John Brinkley, and their four-year-old daughter, Amelia. Marsilli was one of the first Qantas executives to work in Vietnam, becoming operations chief of what was to be a rebadged Jetstar Pacific.

A year later Tristan Freeman, from Melbourne, moved into an up-market apartment in the city’s District One with his wife and two young daughters, and took over as the chief financial officer.

The foreign postings were to become a living nightmare.

Several weeks ago the pair quietly slipped back into Sydney after enduring what friends describe as an “ugly and shameful experience” in Vietnam. For more than six months they had been barred from leaving the country while authorities investigated losses at Jetstar Pacific.

Their hopes of returning home were frequently dashed as officials repeatedly questioned them – neither speak Vietnamese. “They were subjected to intimidation and interrogations, denied legal representation and not told of any charges against them,” an associate says.

Despite their predicament, Marsilli and Freeman did not linger in the minds of most Australians – even when it emerged early this year that Vietnamese authorities had separated them from their families shortly before they were due to board flights home for Christmas.

While saying little publicly, Qantas worked intensely behind the scenes. The airline’s chief of security, Steve Jackson, spent considerable lengths of time in Vietnam trying to resolve the impasse. A veteran of the Australian Federal Police, Jackson headed the investigation of the 2002 Bali bombings and was operational commander for the Sydney Olympics.

The executives might now be home but doubts remain about Qantas’s ability to continue to do business in Vietnam. No charges were laid against Marsilli and Freeman. The investigation into $31 million in fuel-hedging losses at Jetstar Pacific in 2008 was “terminated” without explanation. It is understood the pair do not want to talk publicly about the events.

The matter at the heart of the investigation runs to the top of Qantas. Alan Joyce, the boss of Jetstar before he took over as the Qantas chief executive in late 2008, was one of two Australian executives on the six-member board of Jetstar Pacific when the fuel-hedging contract was approved in February 2008. The other was David Hall, Jetstar’s former chief financial officer, who is now Qantas’s technology boss.

When the controversy first emerged, Qantas sought legal advice about whether it would be safe for its executives to travel to Vietnam. At one stage a Jetstar Pacific board meeting was held in Singapore instead of at its headquarters in HCM City.

Qantas is caught between two camps in Vietnam: one that wants it to strengthen Jetstar Pacific and another that simply wants it out. Aside from the fuel-hedging investigation, Jetstar Pacific has faced other hurdles over the past year, including a push from the powerful Ministry of Transport to have the airline change its logo by September.

Jetstar Pacific is a big threat to the country’s flag carrier, Vietnam Airlines. The country’s second-largest airline was the first to be opened to foreign investment when Qantas bought its initial stake in July 2007.

Qantas now has a 27 percent holding, and the Vietnamese government holds the remainder through the State Capital Investment Corporation.

Carlyle Thayer, a professor of politics at the University of NSW who is an expert on Vietnam’s political and economic transformation, says foreigners cannot expect to rely on the legal system in Vietnam because the law and commercial practices cannot be trusted to mean what they state. “The bottom line is that Vietnam is not a market economy in the real sense. There is risk in the business environment because the state will intervene politically and can criminalise actions that are commercial,” he says.

“The lesson is that Vietnamese state enterprises are always going to be protected against foreigners – it is not a level playing field.”

The Vietnamese government’s investigation into the fuel-hedging losses began last year, despite an earlier review by KPMG for Jetstar Pacific’s shareholders committee finding nothing wrong with the contract. Fuel-hedging contracts are a common tool used by airlines to stabilise the price of jet fuel. The contract Jetstar Pacific entered into for the 2008-09 financial year was its first.

With fuel prices near record levels, Freeman struck a deal with the state-owned Vietnam Air Petrol Company for about 75 percent of its fuel to be capped at $135 a barrel for the year to May 31 last year. But within months the price of fuel had dropped sharply as the financial crisis gripped the world, and by the end of 2008 it had fallen to about $50 a barrel. It left the airline “losing money hand over fist” on the contract.

Marsilli was inadvertently caught up in the investigation because she signed documents related to the contract while filling in for the airline’s now jailed Vietnamese chief executive, Luong Hoai Nam, who was away on holiday at the time.

The losses proved to be ammunition for the Vietnamese political hierarchy opposed to Qantas’s investment. “There was opposition from the day that the airline was branded Jetstar Pacific [from Pacific Airlines],” an employee says. “It was seen as Qantas coming in to ride roughshod over a little operator.”

Qantas was seen as effectively being held to ransom by the Vietnamese authorities – with Marsilli and Freeman used as collateral – to ensure it would not exercise its right under a put option to pull its investment out of Jetstar Pacific. Put options are used to attract investors by giving them the opportunity to recall their investment later if the company fails to live up to expectations.

However, much as some may have wanted to see it gone, an exercising of the put option would have meant that the Vietnamese shareholders would have had to find $50 million to pay Qantas.

An insider claims that Marsilli and Freeman were forced, as a pre-condition of their release, to make a statement acknowledging that they were responsible for the hedging losses, at a hearing headed by a general from the Ministry of Public Security late last month.

The corporate affairs chief at Qantas, David Epstein, dismisses the claims that the two Australians were held to ransom and says that they were not forced to make any written undertakings.

However, Epstein says Qantas recently extended its put option for “a number of years or until the business reaches a point of commercial success”. He says Qantas has no plans to pull out of Vietnam and has committed to increasing its shareholding in Jetstar Pacific to 30%.

Richard Broinowski, a former Australian ambassador to Vietnam, says the lesson for any business operating in Vietnam is to exercise caution and have a good intelligence network.

“Vietnam is like China. There has been a freeing up of the market but behind it you have the iron hand of the Communist Party,” he says. “If things are not in their interests — they are going to jolly well see to it.”

Qantas’s expansion into Vietnam was part of a broader strategy to target the high-growth Asian market by boosting its presence there through partnerships under the Jetstar brand.

When Joyce and Qantas’s then boss, Geoff Dixon, unveiled the rebranding of the airline in Vietnam in early 2008 they claimed that the route between HCM City and Hanoi was potentially larger than between Sydney and Melbourne.

Qantas also eyed HCM City as a hub for long-haul Jetstar flights to Europe using Boeing’s new 787 Dreamliner aircraft. The city was a cheaper alternative to Singapore or Bangkok.

But the Vietnamese government’s cap on fares has made it difficult to realise the domestic market’s potential. Jetstar also opted early this year for Singapore’s Changi Airport as its hub in Asia and launch pad for services to Europe instead of HCM City.

It leaves questions about the strategic rationale for remaining in Vietnam. But Qantas insists that it is committed to its investment.

“We are very confident, as are our Vietnamese partners — that this matter [with Marsilli and Freeman] need not have any significant impact on our commercial partnership,” Epstein says.- The Sydney Morning Herald

Tags: Freed Qantas, Vietnam aviation industry