Higher capital requirements drafted for new airlines

Local aviation authorities are drafting changes to existing regulations including higher chartered capital requirements for new airlines in a move to prevent unqualified investors from joining the increasingly competitive market.

New airlines must have at least VND300 billion (US$14.6 million) if they register one to 10 airplanes for domestic services, or VND100 billion (US$9.7 million) higher than the current requirement, according to the draft changes to Decree 76/2007/ND-CP issued in May 2007 to govern civil aviation activities.

Vo Huy Cuong, director of Air Transport Department at the Civil Aviation Administration of Vietnam (CAAV), told the Daily that higher chartered capital would also be a must for new operators of international services.

Investors will have to guarantee their chartered capital of at least VND800 billion (US$39 million) rather than VND500 billion (around US$24.4 million) as currently if they want to have their new airlines to be licensed to use one to 10 aircraft for international flights.

New airlines registering more than 10 aircraft for international services will have to secure VND1 trillion (US$48.7 million), or VND200 billion higher than the existing requirement.

The aviation authorities want to set higher capital levels following the devaluation of Vietnamese currency against the U.S. dollar earlier this year and rising operational costs. Therefore, investors without substantial financial sources should be discouraged from taking part in Vietnam’s aviation market.

Indochina Airlines is a case in point. Licensed in May 2008 with chartered capital of VND200 billion, this private carrier was grounded in losses and debts about one year its first commercial passenger service took off in November in the same year. Indochina Airlines had its traffic right revoked and its business license being decided by aviation authorities.

The authorities have proposed in the draft regulations that a new airline will lose its business license if it does not begin flights 18 months after it is licensed, or four months shorter than detailed in the existing Decree 76.

To prevent ailing airlines, the draft ruling sets a strict condition for new airlines to obtain an aircraft operator certificate one year after it is licensed, instead of two years at the moment. If an airline has its AOC withdrawn for violations linked to safety standards, aircraft operation and maintenance, it will have to correct all relevant problems within 12 months otherwise authorities will revoke its license.

In reality, aviation authorities have not revoked the license of any airline. In addition to Indochina Airlines, another private carrier VietJet Air got its business license in December 2007 but this VND600-billion airline has for several times sought approval to delay its maiden flights.

Despite a host of stricter regulations, the draft changes will contain favorable conditions for new players in terms of licensing procedures and capital contribution. Investors will not be required to place chartered capital in their bank accounts until they submit final dossiers and their plans for establishment of new airlines have been agreed.

Investors will be able to use their real estate assets as capital contribution in a new airline but their cash proportions will not be less than two-thirds of the required chartered capital. – SGT

Tags: Vietnam aviation, Vietnam aviation industry, Vietnam aviation market