Foreign investors grasp more control overn Vietnam’s aviation market

The Vietnamese aviation market is expected to undergo significant changes next year as the government opens up more room for foreign investors in the industry amid share sale plans of domestic airlines.

Under new regulations on the conditional business lines in the aviation sector, effective from January 1, 2020, Vietnam will raise the foreign ownership limit in domestic air carriers to 34% from the current 30%.

Foreign investors have more chance to enter the Vietnamese aviation market.

Analysts from Ho Chi Minh City Securities Corporation forecast that Vietjet would be the first airline to reach the new foreign holding limit as the budget airline seeks a strategic partner by 2020.

A higher foreign holding ratio will be also expected at Vietnam Airlines that will have to unload 35.19% of state holding in order to reduce state ownership to 51% from the current 86.19% under the government’s 2019-2020 divestment plan.

Pham Ngoc Minh, Vietnam Airlines’ chairman, revealed that the divestment plan has been completed and is being submitted to the authorized agencies for approval, expecting to find capable investors to meet its development demands.

It is expected that Japan’s largest airline ANA Holdings – the current strategic overseas partner of Vietnam Airlines – will be the first to approach the opportunity to increase its holding in the national flag carrier from its current 8.8%.

Newcomer Bamboo Airways, which is operated by property giant FLC, is also planning to conduct its initial public offering, aiming to raise US$100 million and lift its capital base to over VND6 trillion (US$261 million).

With these moves, experts believed that the government’s decision on increasing foreign holding will be a springboard for foreign investors to penetrate the Vietnamese burgeoning market.

According to Vaibhav Saxena, lawyer at Vietnam International Law Firm, the new foreign ownership limit will increase attractiveness of the local aviation market thanks to its growth potential. It creates favorable conditions not only for firms to set up airlines but also for investing in airports.

Foreign investors will certainly be interested in well-established airlines, Saxena told the media, explaining that air travel is booming and features more affordability, it therefore certainly has the potential for continued development and can be a lucrative investment.

Fruitful destination

In fact, foreign investors are very keen on share sales of Vietnamese airlines. Back in 2016, Vietnam Airlines’ stake sale and that of the Airports Corporation of Vietnam were the most sought after in the aviation industry, as many multinationals lined up to take part in auctions. As a result, Vietnam Airlines gained a valuable partner when ANA Holdings bought a nearly 8.8% stake for VND2.38 trillion (US$103.5 million).

The attraction of the share sales is also understandable as the Vietnamese aviation market is considered to have great potential, with a growth rate of 10% per year.

According to the International Air Transport Association (IATA), Vietnam is the world’s fifth fastest growing aviation market and is forecast to handle 150 million passengers by 2035.

Up to 72 international airlines and five Vietnamese carriers are operating flights on 200 international air routes from 25 countries and territories to eight sites in Vietnam including Hanoi, Danang, Ho Chi Minh City, Nha Trang, Phu Quoc, Can Tho, Haiphong and Da Lat. Besides, the Vietnamese carriers are also flying a combined 48 domestic air routes  to 22 airports.

The local aviation market is expected to get busier in the coming months as new brands rush to enter the sector. Procedures and preparations to establish Vietravel Airlines, Vinpearl Air, Vietstar Airlines and Thien Minh are underway.

According to experts, the higher the demand is, the more opportunities for development the aviation sector will have and as a result, the strong growth will drive up the national economy.