Page 26 - Islands Business May 2023

Aviation

PACIFIC GOVERNMENT-OWNED

AIRLINES

THROWING GOOD MONEY AFTER BAD?

An expert on State Owned Enterprises with the Asian represented 20% of the government’s budget. Conversely
Development Bank’s (ADB) Private Sector Development between 2005-2017 Polynesian Airlines flew only domestically
Initiative, Christopher Russell says the Samoan government’s and to American Samoa and was profitable.
experience with Polynesian Airlines shows that “they probably The report posits that the government would have been
would have been better off if they just shovelled that money partially shielded from these consequences if it stayed in a
down the toilet.” joint venture with Virgin Australia branded Polynesian Blue,
Russell made the comment at the Fiji launch of the ADB’s which actually paid the Samoan government a ST5.7million
Finding Balance 2023 report, which benchmarks performance dividend in 2016.
and building of climate resilience in Pacific State-Owned “I’m not exactly sure what the thinking was, but then they
Enterprises (SOEs). essentially just dissolved the joint venture and went off on
That report describes the Samoa experience more their own with disastrous outcomes,” Laine Darcy, ADB Private
diplomatically, stating: “The government’s experience Sector Development Initiative team leader said at the report
with Polynesian Airlines shows the risks associated with the launch.
airline ownership, in particular when facing international “A general theme is airlines are a very risky business,” she
competition. The decision in 2018 to acquire a B737 MAX, the continued. “I think a great example that we’re seeing now,
measles epidemic and coronavirus disease in 2020 created and how a country without an airline is getting services is by
significant adverse consequences for Samoa Airways.” contracting other services, so Air New Zealand is now running
Between 2017-2019, Polynesian Airlines accumulated losses a service from Tongatapu to Vavau. And again, because
of ST51.5million (US$19million). “Cumulative losses have Tonga’s government-owned airline collapsed, so it’s much
wiped out shareholders’ funds, which, by 30 June 2020 were cheaper for them and much lower risk to contract out that
ST17.9 million,” the report states. service to larger airlines.”
An earlier incarnation of the airline which operated until Finding Balance 2023 notes that Pacific Island SOEs involved
2005 also performed poorly; in its final year those losses in air travel and tourism were hardest high in the pandemic,
with revenue for airlines down an average of 34%.
“Five of the seven airlines in the SOE portfolios were
financially vulnerable before 2020, with some generating
losses in each of the five years preceding 2020; COVID-10 only
exacerbated their need for restructuring,” it states.
Air Vanuatu and Polynesian Airlines suffered downturns
of -53% and -33% Return on Assets respectively in 2020
(see table). Air Kiribati and Air Marshall Islands improved
their financial performance due to demand for cargo and
repatriation flights and lower fuel costs. Fuel prices have
since increased.
While the ADB authors caution against state investment in
airlines, former Association of South Pacific Airlines (ASPA)
CEO, George Faktaufon says government ownership of
airlines is important in order to negotiate bilateral air service
agreements (ASAs), in the absence of a global ASA.
Laine Darcy (L) and Christopher Russell
PACIFIC ISLANDS STATE-OWNED AIRLINES PERFORMANCE INDICATORS, FY2020

Government Return on Return on Average ROA FY2015-
Name ownership (%) equity (%) assets Total assets Total revenue Asset utilisation Total liabilities FY20202 (%)
Air Pacific (Fiji Airways) 51 -88 -10 1,170,840 (F$'000) 184,535 (F$'000) 16 1,033,002 (F$'000) 2
Air Kiribati 100 7 3 12,105 (A$'000) 13,751 (A$'000) 114 6.984 (A$'000) -6
Air Marshall Islands 100 11 6 12,419 (US$'000) 6,298 (US$'000) 51 5,003 (US'000) 10
Air Niugini Limited 100 -86 -12 814,198 ($K'000) 620,310 ($K'000) 76 701,618 (K'000) -11
Polynesian Airlines Limited 100 -33 53,644 (ST$'000) 82,172 (ST$'000) 153 71,501 (ST$'000) -18

Solomon Airlines Limited 100 -15 203,352 (SI$'000) 195,445 (SI$'000) 96 250,811 (SI$'000) -8
Air Vanuatu 100 -53 4,238,646 (Vt$'000) 2,420,937 (Vt'000) 57 7,413,871 (Vt$'000) -26

26 Islands Business, May 2023