Vietnam Airlines is on the verge of bankruptcy due to mounting losses and debts in the aftermath of the COVID-19 pandemic, the country’s investment ministry said.
The listed flag carrier was said to have an estimated loss of 10 trillion dong ($435 million) in the first half of this year, while overdue debts have reached 6.24 trillion dong, according to a document from the ministry of planning and investment, dated June 14.
Banks were not extending credit to Vietnam Airlines, which was facing the risk of legal proceedings due to its great amount of arrears, wrote the document seen by DealStreetAsia, describing the company’s situation as “extremely direful”.
Vietnam Airlines’ accumulated loss by the end of the first quarter this year amounted to 14.2 trillion dong. Its debt to equity ratio was 57.8x in the quarter.
The company is selling 11 Airbus A321 aircraft through an auction, in an effort to partially pare its losses.
Vietnam Airlines is 86% owned by the government, and 8.77% owned by Japan’s ANA Holdings.
Aviation was the most seriously hit industry, the Vietnamese investment ministry said. Last year, demands for air transport services declined 34.5-65.9% compared to 2019, and aviation revenues dropped 61% on average.
“Airline businesses have almost reached insolvency, while the sector is predicted to continue to face a lot of challenges in 2021. Even if the pandemic is controlled, it’s expected that only by 2024 can the industry bounce back to the pre-COVID-19 levels,” the watchdog said.
It added that financial resources for other local airliners like Bamboo Airlines and Vietjet were also being drained. Vietjet, for instance, is seeing a 10 trillion dong shortfall for its operations, according to the ministry.
In a similar vein, in Thailand, where tourism played a large part in contributing to the country’s economy, Thai Airways is undergoing a $12.9 billion rehabilitation plan which covers the company’s 400 billion baht ($12.86 billion) debts. It was recently said to reduce its fleet size to 86 jets by 2025 from the current 103.
Thai Airways filed for bankruptcy protection and debt restructuring in May 2020.