Facing liquidity risk, Vietnam Airlines may be granted an extension instead of repaying the principal of a VND4 trillion (US$160 million) refinancing loan starting from July 2024.

This information was recently disclosed by the Government in a proposal submitted to the National Assembly regarding the deferral of the payment of the $160 million of the national flag carrier's refinancing loan.

From July to the end of 2021, Vietnam Airlines utilized a loan package worth approximately $160 million. This was one of two liquidity support measures for the national carrier affected by Covid-19, along with a VND8 trillion ($320 million) equity increase through issuing shares to existing shareholders.

With the $160 million loan, Vietnam Airlines spent over $87.2 million on aircraft leases, nearly $63.2 million on engine and aircraft spare parts leases, and $9.6 million on flight services. By the end of last year, the airline had paid $8.8 million in interest to banks. According to Resolution 135/2020 of the National Assembly and the credit agreements, Vietnam Airlines is obliged to repay the entire principal from July to December 2024.

Vietnam Airlines is in a difficult financial situation. Photo: Pham Hung/The Hanoi Times

However, the Government is requesting the National Assembly to authorize the State Bank of Vietnam to defer payment of the $160 million loan three times. Each deferral period is expected to be equal to the original refinancing period. The total maximum extension time for the refinancing loans shall not exceed five years, including the two extensions already granted under Resolution 135/2020.

The Government has stated that Vietnam Airlines would face significant consequences and risks if it is not granted an extension. As of the end of May, the airline's total debt stood at approximately $676.4 million and is estimated to be $657.5 million by June 30.

"Extending the refinancing loan payment is just one of the measures to alleviate difficulties for Vietnam Airlines, but it is the most feasible and appropriate solution at this time," the Government noted in its report.

Without the extension, Vietnam Airlines could face insolvency starting in July 2024, risking its ability to fulfill commitments to aircraft lessors and service providers. This could lead to lawsuits and damage to its reputation with partners.

Additionally, Vietnam Airlines would incur financial costs if it defaulted on its debts and continued to unilaterally defer debt repayments on a large scale, potentially leading to bankruptcy. This could have repercussions, such as creditors calling in government-guaranteed loans for aircraft purchases. As of March 31, the government-guaranteed loan balance was $331 million.

In response to the Government's proposal, the National Assembly’s Economic Committee agreed to extend the debt repayment to alleviate difficulties for Vietnam Airlines, reaffirm its role as the national airline, and preserve state capital investment in the enterprise.

However, the Economic Committee required the Government to provide a more detailed analysis of Vietnam Airlines' ability to repay its debts.

This year, Vietnam Airlines aims for a parent company revenue of approximately $3.4 billion and consolidated revenue of $4.4 billion, the highest levels in the airline's history. At its peak in 2019, the company recorded revenue of about $3.1 billion and consolidated revenue of $4.2 billion.

The national airline plans to divest from Tan Son Nhat Cargo Services Co., Ltd (TCS) this year, generating a profit of around $72 million. Thanks to this deal and improved profits from its subsidiaries, the airline targets consolidated profits of over $180 million.

In the first three months of 2024, Vietnam Airlines generated consolidated revenues of nearly $1.2 billion, an increase of over 25% compared to the same period last year. The parent company alone earned more than $948 million. This is also the highest quarterly revenue since the company became a joint-stock company in 2015.

After expenses, the parent company made a profit of approximately $64.8 million. Consolidated profit for the first quarter exceeded $194 million, mainly due to income from debt forgiveness agreements with its subsidiary Pacific Airlines.