Fiji Airways Chief Executive Andre Viljoen deserves a rap on the knuckles for his comment that the airline does not respond to political statements, says Labour Leader Mahendra Chaudhry.
He must not forget that the people of Fiji are the majority shareholders of the airline which is in a critical situation facing virtual bankruptcy. It has had to turn to the taxpayers for a massive $450 million loan guarantee to survive for the time being.
There is no question that State institutions and commercial companies must be held accountable to the people. Fiji Airways is no exception. Its annual reports and audited financial statements must be tabled in Parliament but this has not been done for many years now.
It is because of this lack of transparency and accountability that so many questions are being raised today about its operations.
Signs of Trouble
From figures that are available, it is clear that by the end of 2018 the airline was facing serious financial challenges. Its pre-tax profit of $36.6m was 42% lower than the $63.5m recorded for 2017. Performance figures for 2019 have not been released, fueling speculation – did the year end with a loss?
By 2018, the Tourism sector was in gradual decline as gleaned from the reduction in revenues from the Service Turnover Tax
Yet, the airline was taking decisions in early 2019 that were likely to impact negatively on its financial viability. I refer to its decision to acquire the lease of the two ultra-modern A350-900 aircraft from the Dubai Aeronautics Enterprise Ltd.
What prompted this decision? Were the airline and its executives on a huge ego-trip? Just imagine Chief Executive Andre Viljoen boasting to an overseas aviation journalist at the time Fiji Airways leased its two Airbus 350-900 aircraft (November 2019) that the Airline had acquired and leased the two A350s “without any funding from shareholders or third parties other than the lessor DAE Capital”. His words are coming home to roost.
He talked of ambitions to fly Fiji Airways to Dallas, Fort Worth or Chicago non-stop. “It’s going to be a massive game changer for us,” he said.
Not only that, Vilhoen declared: “We might go to a total of 3 or 4 A350s with another one maybe due within 18 months.”
Another boast to a foreign journalist (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.”
Well… are we today paying the price for such “castles in the air” dreams of Mr Viljoen? A little country spreading its wings too far, too quick?
Fiji Airways was, it seems, also under pressure to deliver to the government on its tourism expansion plan hatched in 2017, to boost tourism figures from USD1.6 billion in 2016 to USD 2.2billion by 2021. Was he being pushed?
It is not insignificant that Minister Khaiyum was part of the large contingent that went to Toulouse, France, to pick up the planes amid a lot of fanfare.
A number of aviation pundits had at the time questioned Fiji Airways’ decision to double its wide-bodied fleet from four to eight within a span of just 18 months, particularly at a time when it had just announced a massive 42% decline in profit.
The writing should have been on the wall for Fiji Airways if it was not so bloated with ambition. With the advent of Qantas on its once highly profitable Sydney-Nadi route, the airline was facing stiff competition. Viljoen admitted to Radio Legend that this competition had resulted in significant financial losses of as much as $55m in 2019.
I believe the forays into Singapore, Hong Kong and Japan were not all that profitable. In fact, in the initial years government was subsidizing the Singapore route by $18m annually. We know that the Australian and Sydney routes were profitable. So were the New Zealand services. But were these other long-haul routes giving sufficient returns to justify the resources being spent on them?
Was it also prudent for the airline to invest so heavily in the ultra-modern A350s when it already had a fleet of four wide-bodied aircraft?
Did it rush into leasing the A350s just because the Dubai Aerospace Enterprise Ltd was offering “an attractive lease deal”? The two aircraft had initially been ordered by Hong Kong Airlines which turned it down after facing severe financial difficulties.
This also makes one wonder at Viljoen’s claim that the leased A350s cannot be returned because they came with Fiji Airways specifications. How could this be so when the aircraft was initially built to another airline’s requirements? Internal seating configurations can easily be re-done.
Besides, he claims that the binding agreements signed between the national carrier, leasing companies and financial institutions were “like a noose the airline cannot wriggle out of”.
Business experts are asking: How can there be a leased agreement which is so water tight that the lease cannot be cancelled with perhaps some penalties? A lease well negotiated always has an out clause.
Why was Fiji Airways so desperate to lease an aircraft with such onerous clauses and foolishly agreed to sign such a lease. Who should now take the blame for this “noose around our necks”?
Also, at that time it appears Viljoen was confident he would be able to dispose of two of the A330s after acquiring the A350s. Now he tells us that getting rid of those two aircraft would lead to an asset write down of $300m (USD 150). So Fiji Airways is lumped with them until the loans are paid off in 2026. Did he not study the loan terms for the A330s before finalizing the deal on the A350s? Or did he rush into it regardless of the consequences?
As a result of its adventurist policies, Fiji Airways is now faced with an out-sized fleet it no longer needs which is costing $20.2 million a month in aircraft loan and lease repayments at a time when international flights are grounded and it has no income.
It is lumped with a monthly fixed cost of $38 million, by Mr Viljoen’s own admission. The government-guaranteed loan of $450m will not go far in the current environment. Most observers do not see the airline industry getting back to its pre-Covid levels until at least 2023.
To make matters worse, the airline’s $45m Aviation Academy in Namaka lies idle, adding to its financial woes. Its official opening has been deferred twice since since June last year. Yet another ambitious project gone wrong!
The big question now is: How do we get out of this? Is there a viable rescue plan?
Can we do it by ourselves or will we need to seek assistance from our development partners?
It would be extremely unwise to let the airline continue borrowing without putting in place a clear roadmap for its return to viability.