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On July 13th, 2020, the Prime Minister’s Economic Advisory Group held a roundtable talk on “State Ownership: Post COVID-19 Action and Responsibilities”. The roundtable gathered representatives from government agencies, policy makers, and leading economic experts.
The roundtable used the case study of Vietnam Airlines (VNA) to demonstrate the State’s role in providing solutions to similar struggling state-owned enterprises. Heritage highlights selected speeches from this meeting.
Mr. Nguyen Dinh Cung, Former Director of the Central Institute for Economic Management (CIEM), member of the Advisory Group
The media have recently mentioned that VNA sought the government’s “rescue” or “support”. This is a state-owned company. How about non-state enterprises? It is necessary to clarify the roles of the government to VNA as an owner and as a management agency for these two roles are distinctive and totally different.
In fact, governments from many other countries that assume the same two roles have acted much faster and more effectively. As a State management agency, they have provided all possible subsidies, and waived and cancelled taxes and fees; whereas, Vietnam has only offered some fee reductions. As owners, other nations’ governments have provided loans; bought additional newly-issued shares to help expand the company’s funds; supplied additional investment; and taken control of a certain percentage of ownership. These efforts aim to keep an important business from bankruptcy.
By the end of May 2020, the total support from other nations’ governments to aviation firms had reached USD 123 billion, including capital loans, guaranties, subsidies, equity investment, operational supports, fuel tax reductions, infusions of funds, and others.
In Vietnam, we as a management agency have only implemented a general support policy to the entire aviation industry.
As an owner of a struggling enterprise, the government should show their responsibility to their investment in VNA. It is important to keep VNA afloat. It is understandable to deny a bailout due to a normal management failure. However, exceptions can be made in a force majeure, in this case, a pandemic.
Mr. Tran Dinh Thien, Former Director of the Vietnam Economic Institute, Chairman of the Scientific Council of Vietnam Economic Institute, member of the Advisory Group
The owner’s responsibility to VNA argument was raised to avoid public outcry against bias to state-owned enterprises. However, it is not much of a rescue but the State “taking responsibility” for VNA. With a plethora of enterprises severely affected by COVID-19, which is out of the government’s economic reach, we must choose the key areas to support. This is not to save a single business but the whole economy.
I have received questions showing concerns for Vietjet and Bamboo. It is clear in the argument of saving VNA due to State ownership. As a management agency, the government has applied tax and fee reductions to all enterprises, including VNA, Bamboo and Vietjet. As an owner, the government should save VNA. This is an act of integrity and transparency.
Of most importance now is early implementation. We must promptly apply the found solution or else the cost of saving VNA will rise. The earlier VNA recovers, the better contributions it can make to the economy and healing the tourism industry.
Mr. Truong Van Phuoc, Former Acting Chairman of National Financial Supervisory Commission, member of the Advisory Group
Here is an argument from a general financial angle. The total assets of VNA are USD 3 billion. The equity claims from USD 700 to 800 million. The carrier is forecast to suffer a loss of VND 15 trillion by the end of this year, which will chip away all its equity. Though equity would be secured with future profits, the pressure VNA is facing is real.
It should be made loud and clear that this is not a priority given to VNA but to the aviation industry and entire economy. How will we travel with no service from the industry? We must provide strong arguments to support the government in their rescue mission of VNA. Legal exceptions should be considered because COVID-19 was unforeseen. The social distancing itself was also unprecedented. Normal rules should not be applied to this extraordinary event.
Mr. Duong Tri Thanh, President & CEO of Vietnam Airlines:
The aviation and tourism industry came to a standstill due to the COVID-19 outbreak. For the very first time, we witnessed a pandemic spreading through 213 countries and territories, freezing the whole aviation industry as it went. VNA is suffering from this same turbulence with our revenues falling by half from last year. Since 1975, there have never been fewer commercial flights in Vietnamese skies. Moreover, domestic flights bring lower revenues and profits compared to international flights.
Moreover, since the working capital of the aviation industry comes from money paid for future flights, the industry’s cash flow has been drained due to a drop in revenues and ticket refunds, causing serious liquidity problems. The deficit in cash flow is anticipated to reach VND 16 trillion and the situation will worsen by the end of August. Therefore, to maintain the stability and development of VNA, we are seeking an urgent VND 12 trillion bailout from the government, which owns our 86-percent stake.
With our quality technical operations system and the professional support services of the aviation supply chain, we are confident that VNA will recover quickly and repay this government bailout, while continuing to fulfill our political and national security missions to the State and the Party.
Mr. Pham Duc Trung, head of the Department of Enterprise Development and Reform Study (under CIEM)
I do not agree with the word “support” either. This is an enterprise management action, the way an owner protects their assets.
The law allows a joint stock company to increase their capital by issuing additional shares to existing shareholders. However, the proposed VND 16 trillion has exceeded the authorization of the Commission for the Management of State Capital at Enterprises. The Enterprise Law also allows the company to ask their existing shareholders for a loan which, in this case, has exceeded the brackets of group A allowance of the Commission. Therefore, the government should be involved.
Personally, I favor the loan option more than capital raise, nonetheless an agreement with consideration to effectiveness must be made.
