Keeping foreign ownership limit unchanged for Vietnamese airlines

June 17, 2024 - 08:17
Any proposal to increase the foreign ownership limit from 34 per cent to 49 per cent would need to be carefully considered
A plane of Bamboo Airways on the tarmac at Cà Mau airport. — VNA/VNS Photo

HÀ NỘI — There is no legal basis at the moment to consider proposals related to raising the foreign ownership ratio in aviation transport businesses to 49 per cent of the charter capital, said the government agency.

The Government Office has asked the Ministry of Transport (MOT) to provide written comments on the feedback from the Ministry of Planning and Investment regarding the proposal to increase the foreign ownership cap from 34 per cent to 49 per cent of the charter capital, in the aviation transport business of Bamboo Airways.

In a document sent to the Prime Minister in early April, the Ministry of Planning and Investment (MPI) said that according to Việt Nam's WTO commitments, the country has not committed to fully opening up the domestic aviation transport market.

Việt Nam has only committed to allowing international air transport operations through the establishment of foreign airlines' ticket offices or agents in the country.

As a result, the ministry affirmed that the further opening up of the domestic aviation transport market entirely depends on the Vietnamese Government.

According to current regulations, the foreign investor's capital ratio in a Vietnamese air transport enterprise is capped at 34 per cent of the charter capital.

Changing the foreign ownership limit could affect the ability of Vietnamese airlines to attract foreign strategic partners to participate in business operations and management restructuring, as well as access to international aviation networks and partnerships that foreign investors could facilitate.

Additionally, raising the foreign ownership cap could strengthen the competitive position and market share of foreign-invested rivals against domestic Vietnamese airlines.

Any proposal to increase the foreign ownership limit from 34 per cent to 49 per cent would need to be carefully considered, a representative from the MPI said, adding that Việt Nam had previously allowed this higher 49 per cent foreign ownership limit, but later had to adjust it down to the current 34 per cent cap.

The representative agreed that regulating the foreign ownership ratio in aviation is under the authority and responsibility of the Ministry of Transport, as per Government Decree No. 56/2022/ND-CP.

Therefore, the MPI representative said that currently there is no legal basis to consider the proposal from Bamboo Airways to increase the foreign ownership ratio in air transport businesses up to 49 per cent.

Appropriate ratio

The state aviation management agency stated that the 34 per cent ratio of foreign investor capital contribution in charter capital has essentially created favourable conditions for foreign investors to participate in investing in Vietnamese airlines.

This regulation also ensures a proper balance with domestic air transport enterprises in terms of resource allocation and helps avoid impacts on Vietnamese airlines during their business operations and air transport activities. According to the Enterprise Law, shareholders holding over 35 per cent of charter capital have veto power over shareholder meeting resolutions.

However, Decree No. 89/2019/ND-CP also permits foreign investors to choose to contribute capital in Vietnamese legal entities participating in air transport business, with a ratio not exceeding 49 per cent of charter capital.

Previously, in reports to government authorities regarding its Restructuring Plan, Bamboo Airways proposed raising the foreign investment ceiling to 49 per cent of charter capital.

The airline's leadership has engaged with many foreign investors, who have been interested due to the potential of the Vietnamese market - its abundant qualified personnel with reasonable labour costs, strategic location for transit hub development and opportunities in aviation services and manufacturing.

Given foreign investor appetite, Bamboo Airways has sought regulatory changes to enable greater than the current 34 per cent foreign ownership, in order to better facilitate the level of foreign participation it has encountered.

With the current 34 per cent foreign investment cap, foreign shareholders do not have decision-making rights, neither can exercise veto power over key decisions, making investment in the sector quite risky.

To create more favourable conditions for Bamboo Airways and Vietnamese airlines to attract beneficial foreign capital, the company has proposed that the PM consider raising the foreign ownership ceiling back up to the previous 49 per cent, as was stipulated in earlier regulations. — VN