Vietnam Airlines: The Truth Lies in Facts

Recently, the press circle in Vietnam ran allegations about VNA’s aircraft purchases with such headlines as “VNA buys medium-range engines for long-range airplanes…” or “Vietnam Airlines fibs PM…” The doubt lay in VNA’s decision to buy engines manufactured by Pratt & Whitney (PW) while the market share of this firm was smaller than its rivals and the price was higher. Further, large airlines in the world no longer use PW engines. Many wondered why VNA spent hundred millions of US dollars to buy four expensive PW engines and then leave them idle.

According to Mr Nguyen Xuan Hien, General Director of VNA, between 2000 and 2001, regional flights play a crucial role in the VNA business plan as they generated more profits than long-distance routes (to France or the US). So, VNA decided to buy four B777-200ER LGW aircraft for regional air routes to Northeast Asia and Australia. The engines still had to match the target of the project and had to be suitable for the types of chosen airplanes.

 

According to the calculations of Boeing and VNA, only three engine manufacturers satisfy the requirements of Boeing, the US Federal Aviation Administration and the EU Civil Aviation Authority to produce engines for B777 airplanes. The three capable manufacturers are General Electric (GE) and Pratt & Whitney (PW) of the US and Roll Royce (RR) of the UK. According to recommendations and calculations of Boeing, these manufacturers offer three types of engines to VNA, namely GE90-85B, PW4084D and T884, which have the similar propulsive force. They met all technical specification and safety requirements, and matched the Government-approved plan of VNA.

As an enterprise, VNA had to choose the most reasonable engines, Hien stressed. Therefore, VNA adopted engines of Pratt & Whitney because their prices were the lowest of the three offers. The price of PW engines was VND600 billion (US$37.5 million) lower than GE and VND195 billion (US$12.12 million) lower than RR. In fact, a lot of large airlines are using PW engines for B777 airplanes, such as Japan Airlines, Korean Air, United Airlines, Air China and EgyptAir.

However, the problem is when VNA chose PW engines, the Civil Aviation Administration of Vietnam thought RR engines were more suitable because RR engines were more popularly used in the world. As a result, the rumour about the purchase contradiction between the State direct management organisation (CAAV) and its subsidiary enterprise (VNA) emerged. Eventually, VNA submitted this issue to the Prime Minister for final approval. And, the purchase of PW4084D engines was ratified by the Prime Minister because they satisfied all technical specification requirements, had reliable operations and more importantly had lower prices. The offer price of RR was even US$1 million higher than the bid-winning price of PW, Mr. Nguyen Xuan Hien explained at the press conference to clean the rumour that RR engines were lower.

Mr Nguyen Si Hung, Chairman of the VNA Boards of Directors, asserted that any enterprise put profits and cost prices on the top to ensure lucrative businesses. If anyone took this purchase to seek money, they had to be answerable to the law. He said there was no dubious lobby in the VNA purchase of PW engines.

 In addition, Mr Hung also demonstrated that VNA had a very astute investment strategy because the purchase took place after the September 11 terrorist air attack in the US when buying prices and hiring prices significantly dropped. At that very time, VNA decided to buy four Boeing 777 and hired many airplanes at prices that were about 20-40 per cent lower than the current level. Therefore, many censured why aircraft rents increased year after year, which is contrary to normal leasing contracts. But, according Mr Hien, this is a success of VNA in aircraft hire negotiation. For example, in 2002, VNA paid only US$600,000 for the airplane lease. The rent rate rose year after year. Currently, the rent is US$1 million. Or in other words, VNA brought in a lot of benefits for the State. 

In fact, only in a short period of time, VNA has equipped a reliable fleet with 38 airplanes of various types like Boeing, Airbus, ATR 72 and Fokker 70. To date, VNA-owned and -rented airplanes are operating in full capacity and this is a clear-cut evidence for its efficient business plan. According to the plan, VNA will have 52 airplanes and rent an additional 60 units.

 

With the clear explanations and evidence for the purchase of aircraft and engines, VNA has another chance to polish its image before the public.

 

In the recent five years, the average annual growth rate of VNA is 15.4 per cent in passenger transportation and 16 per cent in cargo conveyance.