Indochina Airlines still hit by turbulence

The VND25 billion ($1.25 million) bad debt Indochina Airlines owes to aviation fuel supplier Vinapco would have been avoidable if the latter had received more justified instructions from relevant authorities.

Under the Dispatch 2131/CHK-TC dated June 24, 2009 the Civil Aviation Administration of Vietnam (CAAV) asked Vinapco not to stop supplying fuel to Indochina Airlines though the air carrier was a bad debtor. It said that discontinued fuel supply would adversely affect passengers as well as the aviation sector’s overall performance.

CAAV’s decision made the fuel supplier to bear a huge loss of up to $1.25 million.

Since that private airline began flying from early 2009, it had been a persistent bad debtor to Vinapco. However, Vinapco could not unilaterally stop supplying fuel for Indochina Airlines to avoid further debt as under the Competition Law’s item 3, clause 14, Vinapco as the single aviation fuel supplier was forbidden to take advantage of its monopoly to unilaterally cancel contracts.

In the commercial dispute between Vinapco and Indochina Airlines, two relevant management agencies have given out ambiguous instructions.

The Vietnam Competition Authority, an anti-monopoly state agency on economic activities, in its Document 273/QLCR-HCT dated April 28, 2009 said that the settlement of debt between Vinapco and its customers had to follow relevant laws and clauses in the signed contract.

However, it failed to give out a clear response for the question whether Vinapco violated the Competition Law if it stopped supplying fuel to Indochina Airlines.

For its part, CAAV in the instructive document 1369/CHK-TC, proposed Vinapco take appropriate measures to collect debts. However, it also requested the fuel supplier not to pause providing fuel to the airline saying that this could cause big impacts on passengers and the sector’s performance.

“We [Vinapco] are very confused with these equivocal instructions. Vinapco cannot wait for CAAV to considering withdrawal of operational licences of underperformed airlines while seeing our loss mounting up day by day,” said general director Tran Huu Phuc.

Vinapco reportedly sustained a fine of VND3 billion ($150,000) in March 2008 when it unilaterally stopped supplying fuel to Jetstar Pacific Airlines because the latter refused to pay the fuel cost arguing that its fuel cost was overly high.

Aware of the case, on June 23, 2009 Indochina Airlines forwarded the Document 0908/2009/ICA to Vinapco asking the fuel supplier to suspend the debt amount of VND11 billion incurred by that time and promised to pay back when the airline restructured its capital sources in September, 2009.

The airline, however, stopped flying from November 1, 2009 due to losses and debts. – VIR

Tags: Indochina Airlines