As Vanuatu’s government seeks to revive Air Vanuatu, the World Bank has pointed to the airline’s collapse as a cautionary tale about the risks of “opaque State-Owned Enterprise administration”.
In its Pacific Economic Review released in October, the Bank noted that the liquidation of the airline had led to an almost 2% downgrade in growth for Vanuatu, compared to the March 2024 projections.
Air Vanuatu went into liquidation on May 9 of this year, after months of accumulating debt, cancelled flights, labour shortages, grounded planes, and maintenance difficulties.
Stranded passengers were able to travel when Fiji Airways, Qantas and other carriers stepped in, but the damage to Vanuatu as a tourist destination was immense. The flow of workers from Vanuatu under labour mobility schemes to Australia and New Zealand has also been disrupted, and other economic sectors affected.
The World Bank notes that Vanuatu’s “current account deficit is expected to widen substantially from 2.2% of GDP in 2023 to 7.4% of GDP in 2024 as travel receipts decline”, and that the cost of restructuring the airline will likely result in a 12-13% increase in public debt.
It concludes that tax reform will be needed to increase revenues “such as the introduction of income taxes, fishing licensing fees, and higher VAT rates” and that non-priority spending should be reduced, “including pausing interim spending measures like increases in public employee compensation and allowances”.
AV3 to the rescue?
Ernst & Young was appointed as liquidators of Air Vanuatu in May and given the role of restructuring its debts and finding a buyer. By October, it had recognised US$129.4 million in creditor claims.
Eleven entities reportedly expressed an interest in buying Air Vanuatu, including AV3, which is a special purpose entity owned by Vanuatu’s Ministry of Foreign Affairs. Ernst & Young accepted AV3 as the preferred buyer.
AV3 has agreed to pay US$3.3 million into a fund to pay creditors in three tranches, and within ten months of the creditors agreeing to the compromise. Ultimately, 306 creditors voted in favour of the compromise, and 18 opposed it.
On October 2, Vanuatu’s Supreme Court granted orders to terminate Air Vanuatu’s liquidation on the grounds that a compromise fund be set up, and that the first payment of US$1.1 million be made. Those conditions were met and the liquidation was terminated on October 11.
At that time, Ernst & Young’s Morgan Kelly noted that: “The implementation of the Deed of Compromise maximises the return to creditors and presents an opportunity for the Air Vanuatu business to continue, saving jobs and providing vital aviation services for Vanuatu.”
Air Vanuatu’s directors and management have reportedly resumed their positions and some domestic flights have resumed. However, Air Vanuatu’s jet was repossessed earlier this year, and it is unclear when, or how, international flights will resume.
As we went to print, representatives of German aviation investors, Panaf were in Vanuatu conducting a due diligence on Air Vanuatu and AV3. The Vanuatu government says while it is looking at a minority partner, AV3 will retain 51% of the shares.
However, the same problems that plagued Air Vanuatu prior to its collapse, most notably a lack of transparency around how it was being run, have characterised AV3, the Vanuatu Daily Post has noted.
The newspaper asks where AV3/the government has sourced its initial US$1.1 million payment from, how it intends to raise the remaining funds, what offers the other ten interested parties made, and whether the existing management and board members will remain, noting: “The directors of this mysterious company that’s considered private with VFSC and government owned in court are not saying a word to mainstream media.”
