Air Vanuatu | CAN IT BE SAVED?

An assessment team of aviation experts from Australia arrived in Port Vila on January 13, 2023, to undertake a rapid assessment of the current situation of Vanuatu’s national flag carrier, Air Vanuatu over a 30 -45 day period. This followed the request of the office of Prime Minister (PM), Ishmael Kalsakau, in December 2022 to formally request Australia’s assistance to support Air Vanuatu. The team was led by the Australian Government’s Department of Foreign Affairs and Trade (DFAT) aviation specialist, David Charlton.

The request to Australia for assistance was in direct response to the newly elected government’s acknowledgement late 2022, that the National Airline was in serious trouble.

In his maiden speech to Parliament following the National Elections and his election to the post of Prime Minister, Ishmael Kalsakau labelled the current status of Air Vanuatu as a ‘mess’.

He made the remarks during the appointment of the new Ministers at the Parliament Rotunda. PM Kalsakau acknowledged the national flag carrier was a source of national pride in Vanuatu, but had come under a lot of scrutiny in the past and recently.

“Our airline is a critical infrastructure in this country, and unless we remove political abuse, corruption and mismanagement, we will continue to ruin our national symbol,” he said.

“During the COVID-19 pandemic, we witnessed a layoff of over 300 workers, and this has directly impacted the service we should provide to the customers,” said PM Kalsakau.

The report was completed and handed over to the Vanuatu Government by the Australian High Commissioner, Heidi Bootle on the 12th February.

The initial findings of the Aviation Team from Australia suggests that AVOL is…

PC: Joe Harry Karu

“Fixable with Focus” if a key range of recommendations are adopted.

The recommendations covered the areas of Governance/ Board Arrangements and the Financial status of the embattled Airline.

Governance and Board Arrangements

The assessment team found that Board engagement with Management needed to be changed in order to improve the effectiveness and focus of the CEO and the management team on operational issues. The key recommendations were

  1. Reduction in the frequency of Board Meetings and engagement of the Board with airline staff
  2. An Expansion of the Board to include representation from the PMO and Industry
  3. Implementation of a weekly Reporting system from CEO to the Board on operational issues based upon agreed criteria. Key issues concerning staffing, engineering and financial management were identified which would be resolved through major board resolutions. In addition, it recommended that the CEO to be authorized to commence discussions with aircraft lessors with a view to assuring aircraft access through the next 12 months.

The Current Board members of AVOL are

Willie Daniel Kalo MP Chairman

Joseph Laloyer Acting CEO

George Iapson 1st PA Finance

Harrison Toar Luen 1st PA MIPU

Esline Esnet Turner Businesswoman

Sowany Joseph Matou Businessman and Former Government Director

The Current Board were appointed on the 28/11/22 following the Snap elections in October 2022 and the removal of the oldBoard under the previous Loughman led government.

It has been normal practice in the past that the Board of Air Vanuatu changes with every change in the political landscape. Sometimes, changes to the Board Composition are caused by other factors other than politics. In March 2021, the Government of the Day terminated the entire Board leaving the Chairman Sam Firi and CEO Atu Finau as surviving members. The reasons for the termination were because of the dire financial position of the airline and the intent of the Vanuatu Government to take financial control of the Airline with close oversight on its spending. The Financial position of the airline did not improve.

The Rapid Assessment Team’s report has omitted to mention the challenges of managing an airline amidst numerous changes to the Board’s structure, and how this could adversely affect corporate governance, stability, and the continuity of Board Policy. Additionally, the report does not acknowledge that the airline has previously been exploited as a political tool by the ruling government to appease its supporters and the effect this has had on the airline. Should there be a future successful vote of No Confidence in the current government, it is highly likely that there will be changes again to the Board

Business Recovery

PC: Joe Harry Karu

The Report has strongly recommended that a business recovery plan is urgently required to be considered by the Board in May 2023 and to be implemented on 1 July covering the following areas.

  1. Options and recommendations for the future structure and Fleet
  2. Sustainable treatment of Historic Liabilities
  3. Divestment of Non-core Activities
  4. Other elements including staffing, training, collaboration, and partnerships

Currently, Air Vanuatu operates a Boeing 737, one ATR, and one Twin Otter aircraft. Former Chief Executive Officer (CEO) Atu Finau initially revealed last November that the airline had plans to almost double its current fleet at the time.

In February, an article in the Daily Post reported that Air Vanuatu was set to receive its new fleet, according to a close source from the company. The new fleet is said to consist of an ATR and a Twin Otter aircraft.

On 18 February, the Executive Chairman of Air Lease Corporation, Mr Steven F. UDVAR’HAZY met with the
Prime Minister Kalsakau. During their discussion, assurances were given to the Prime Minister that between April and June of 2023, an extra Boeing would be added to its fleet and it was also confirmed that 2 new Super Jets would be arriving in the same period 2024 to replace the current Boeings.

Financial Considerations

The Report has found that the Airline has Liabilities of approximately USD23m, USD6m of which is currently owed to Boeing. However, to offset these liabilities, it has approximately USD10m across 18 bank accounts in multiple currencies with another USD11.5m as a deposit with Airbus. The Audited 2020 financial accounts of Air Vanuatu show the following. Accumulated losses of the airline as of
31st December 2020 were VT7.786b and the net equity position of the company was a negative VT3.175b. Air Vanuatu has been technically insolvent since 2008 and has only been solvent with the ongoing support of the Vanuatu Government.

The report recommended the following

  1. Immediate technical support to the CFO and Accounting team which could be provided by Australia.
  2. Payment of 20% of the current USD6m owed to the lessor
  3. Immediate Payout of all outstanding wages and superannuation entitlements to current and former employees.

What about the Airbus Contract?

Whilst there was a brief mention of a deposit of USD11.5m with Airbus, the glaring omission in the Rapid
Assessment report is the Purchase Agreement that was entered in to between AVOL and Airbus Canada for the purchase of 4 Airbus A220s

At a joint press conference on the 28th of February 2019, between Air Vanuatu and Airbus Corporation in the Bauerfield Airport VIP lounge, Derek Nice, the CEO at the time confirmed that Air Vanuatu would be acquiring four Airbus A220s for a total cost of approximately US$350 million. He continued to say that the additional aircraft to the fleet would bring 300,000 + visitors to our shores by the year 2030, three times more than tourism numbers at the time. On March 2020, Air Vanuatu announced that it had finalized its A220 project financing with the selection of a major international aircraft lessor to finance its new Airbus A220 aircraft fleet. Then COVID arrived and all the plans were shelved.

In October 2020, the government announced that there would be an investigation into the purchase of
the A220s, and in December 2020, a commission of inquiry was set up headed by John Path as chair. The COI report was tabled to the Minister of Justice in April 2021. The COI concluded that the A220 aircraft was not suitable due to a lack of pilots and engineers to fly and maintain the aircraft. However, a deposit of VT1.278b was paid in 2019 as part of the purchase agreement and is currently in the Balance Sheet of the Airline as a deposit. Negotiations are continuing between the Vanuatu Government, Airbus Canada Limited, and AVOL on how to resolve the situation.

Whats Next?

It is clear that the road to recovery will be long and many changes will need to be made. Foremost on the list of priorities will be to recapitalize the Balance sheet of the Airline in order for it to function properly. This would require a further injection of funding from the Vanuatu Government to alleviate the aircraft
lease pressure. This would provide the Management of AVOL some breathing space to implement the recommended changes to its Board Governance and Operations. The initial rapid assessment Report has prioritized the recommended courses of action as the diagram above.

The Kalsakau Government has demonstrated that it is committed to the reform and support of our National Airline. There are always going to headwinds against recommended changes. Time will tell if these changes can be implemented and our Airline saved.


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