Time for a hard look – Fiji Airways is seriously troubled
30 May, 2020, 7:05 pm
Fiji Airways is in serious trouble, there is no doubt about that. The Government’s loan guarantee of $455m will not get it out of the woods.
The question is: are its current circumstances wholly attributable to the COVID-19 crisis? Or had it taken imprudent operational risks which were beginning to take its toll on the airline’s profits and financial sustainability?
In other words, are its 758 workers, whose employment contracts were terminated on Monday, paying the price for the adventurism that Fiji Airways appears to have embarked on in recent years? Has our ambitious little airline over-reached itself financially in its eagerness to stretch its wings too far, too soon?
It is time to take a hard look at the underlying causes of the airline’s ‘near collapse’.
Airline chief executive Andre Viljoen in his letter to the terminated staff admitted: “For months now, we have been negotiating daily with financial institutions and aircraft lessors for new debt financing and payment deferrals which will allow us to stretch the cash reserves we have, during a period of zero incoming revenue.
“Simply put, our revenue has effectively dried up, but our monthly fixed costs and financial obligations remain.”
This explains why Government had to seek parliamentary approval this week to guarantee massive new lending for the airline of $455m to be raised both locally and internationally.
The money is required to apparently prop up the airline’s cash reserves, pay for payment deferrals, and new long-term debt financing.
The airline’s profits had nosedived in recent years — down 42 per cent (almost halved) between 2017 and 2018 from $63.5m to $36.6m. Figures for 2019 are not yet available.
On the heels of the revelation regarding the huge dip in profit, Fiji Airways, early in 2019, announced highly ambitious plans to lease the world’s ultra-modern A350-900 XWB wide-bodied aircraft from a Dubai aerospace company, the first airline to do so in the South Pacific.
It had to borrow $53m from FNPF to pay for the initial leasing costs.
At the time Mr Viljoen proudly proclaimed to Australian Aviation (May 2019): “Ultimately, a luxury, world-class destination, like Fiji, deserves a luxury, world-class travel experience and that’s exactly what these aircraft will deliver.”
But: Was it really necessary to graduate to A350-900 so soon after acquiring the A330s, considering the sharp drop in the airline’s profit for 2018?
I am informed that Fiji Airways had anticipated disposing of its A330-200 aircraft, using the proceeds from the sale to improve its balance sheet prior to entering into the leasing agreement for the two A350s.
This did not work out when it found that phasing out the planes would lead to an asset write down of $300m ($US150m).
The leasing of the two new A350-900s, which increases Fiji Airways’ wide-body fleet from four to eight aircraft within a short span of only two years, is regarded as somewhat over-ambitious by industry pundits.
But it seems the decision to do so was pushed on Fiji Airways to support Government’s new tourism plan which aims to grow the tourism industry from $3 billion to $4.4b by 2021.
The leasing arrangements for the two state-of-the-art planes have not been disclosed but it undoubtedly left Fiji Airways frantically searching for new financing and loan restructuring facilities after the COVID-19 pandemic grounded all flights.
The airline’s adventurist policies have also seen it expand recently into questionable routes that were not profitable: Singapore, Hong Kong and Tokyo at a time when both Japan Airlines and Korean Airlines had withdrawn from the Fiji route. The Singapore venture was subsidised through a Government grant of $18m in the initial years.
Fiji Airways’ foray into unprofitable routes was coupled with the blunder to buy the out-dated A330-200 and the 737 Max, an aircraft that hadn’t been tested and had to be grounded shortly afterwards for safety reasons.
The worrying point is that in the event of a default by the airline to meet its repayment commitments, it would be the Fiji taxpayers who would eventually cop the bill for the $455m government guarantee to the airline plus the $53m owing to FNPF.
Economy Minister Aiyaz Sayed-Khaiyum was pretty short on information about how the money was to be used and the current financial status of the airline. He did say, though, that the loan would save the airline from total collapse — but that is hardly enough from the taxpayers’ perspective.
Did the airline not have any funds in its reserves to carry it through for at least six months without resort to borrowing? How did it get into such a vulnerable financial state? Were some imprudent decisions taken along the way? These are the questions to which the taxpayers would want answers.
Another important issue to be considered is why are the annual reports and audited financial accounts of Fiji Airways not tabled in Parliament?
If the taxpayer is to assume the responsibility for guaranteeing huge loans for the company, then, surely, their representatives in Parliament must be given the right to scrutinise its affairs, given that the people of Fiji own 52 per cent of the airline.
Furthermore, Government’s guarantee for the $455m loan puts it in a strong position to insist that the airline rescind its termination orders to the 758 workers.
Fiji Airways should reinstate the employees and enter into negotiations with its unions to allocate work to the employees on a rotational basis to guarantee them reasonable income.
* Mahendra P. Chaudhry is the leader of the Fiji Labour Party and former prime minister of Fiji. The views expressed are his and not necessarily shared by this newspaper