Liquidators say a ‘clearly’ broke Air Vanuatu owes at least $99m

Photo: Air Vanuatu

Air Vanuatu administrators say the airline was “clearly not in a position to meet its financial commitments” well before it collapsed earlier this month, and is more than $99 million (US$66 million) short of being able to pay back its customers, staff and lenders in full. 

In a lengthy report to creditors, EY, the company’s liquidators, said Air Vanuatu had a “high-cost base for the size of … operations” and “a significant level of debt”, employing “a high number of staff for an operation of [its] size and nature”. 

Air Vanuatu’s single Boeing 737-800 has been out of action since March.  

Air Vanuatu has been financially supported by the government of Vanuatu for some time. AFR Weekend reported that governments in the Pacific indebted to Beijing for Belt and Road Initiative infrastructure spending had begun cutting costs, which sources said was one reason why a financial lifeline to the carrier had been cut. 

Air Vanuatu flew to Brisbane, Sydney, Melbourne and Auckland, as well as Nadi in Fiji and Nouméa in New Caledonia, and operated a small domestic fleet. 

The airline fell into liquidation on Friday after cancelling dozens of its international flights, with airlines across the Pacific rushing to help rescue stranded passengers. 

The Australian Financial Review reported on Wednesday that Fiji Airways was interested in acquiring Air Vanuatu. Fiji Airways and Virgin Australia have both added extra flights to Vanuatu to help travellers stuck in Port Vila. 

Earlier this week, Virgin applied to the International Air Services Commission for permission to fly seven more services per week from July, after the Department of Foreign Affairs and Trade asked the airline for assistance. 

In its report to creditors, EY said Air Vanuatu had been “unable to meet the costs of parts critical to the fleet’s operation (resulting in aircraft being grounded for extended periods of time), and encountered issues, such as defaulting under supplier arrangements”. 

“The company’s financial position is dire, and it clearly cannot fund its own operations.” 

Its initial estimates suggest the company owes US$73.5 million ($110 million) – a figure which does not consider employee entitlements but does include a US$21.8 million loan from the government – but a shortfall of US$65.9 million to pay all creditors. 

“The Liquidators understand that prior to the liquidators’ appointment, the government had been providing continual financial support to assist the airline and its operations through the financial challenges,” the report, authored by EY’s Morgan Kelly, Andrew Hanson and Justin Walsh, reads. “We note that due to the poor state of the company’s financial records, we are unable to verify whether this information is accurate.” 

According to the Lowy Institute’s Pacific Aid Map, China has been the second-biggest benefactor of finance to Vanuatu after Australia, providing $483 million (US$322 million) in aid and loans. Critics have accused authorities in China of “debt trap diplomacy”, saddling impoverished nations with loans they ultimately cannot afford to repay. 

Air Vanuatu’s only Boeing 737 is in Melbourne after being repossessed. Of its five smaller planes, only two are considered “flight ready”.