The CEO of Fiji Airways, Andre Viljoen, has a reputation in the aviation industry for not only being competent but tough as nails. As a former President and CEO of South African Airways and CEO of Air Mauritius, even the most challenging times in Fiji pale into insignificance compared with Viljoen’s experiences in the wilds of southern Africa and the Indian Ocean. So far, at least, no-one in Fiji has pulled a gun on Viljoen and held it to his head, as is said to have happened when he discovered an aircraft spare parts racket among some of his staff in a former management role. The gun to the head now is figurative – the sudden grounding of the Fiji Airways fleet because of the Covid-19 crisis and the very real threat of the airline crashing.
True to his roots, Viljoen has emerged as a notable straight shooter in his role at Fiji Airways. This now includes some startlingly candid recent comments to the Nadi Chamber of Commerce, whose members call the shots in the “jet-set city” where Fiji’s national airline has its base. How those comments wound up on the front page of the Fiji Times newspaper isn’t clear. They are so candid, even brutal, that it seems highly unlikely that Viljoen intended them to be reported. It was presumably a “Chatham House rules” gathering in which his remarks were meant only for the ears of those in the room. Viljoen obviously saw it as his duty to give some of Fiji’s top businessmen the heads up about the economic fallout of the Covid crisis on the airline and how it might affect them. And it may not have crossed his mind that those remarks might be recorded and leaked. By any standard, they were journalistic dynamite. And especially when the Fijian taxpayer has so far given Fiji Airways more than $455-million in government guaranteed loans to keep it afloat and that commitment is obviously finite or the country itself risks going down with its national airline.
Viljoen revealed that even though it has put nearly 800 of its staff on the street and is currently spared the massive fuel bill that is any airline’s burden, the national carrier still needs a staggering F$38-million a month to meet “recurring costs” on its fleet of leased aircraft and those that it has bought and is paying off. Those aircraft are mostly lying idle at Nadi Airport, with a number of cargo flights still operating but no scheduled international passenger services. Fiji Airways already had two Boeing 737 Max 8s mothballed in the central Australian desert – the first of five the airline originally ordered – as part of the global grounding of all Maxes after two of the aircraft type crashed – one in Indonesia in 2018 and the other in Ethiopia last year – resulting in the deaths of 346 people.
Choosing Boeing Maxes over the Airbus equivalent, the A32Oneo, for the airline’s next stage of development may be a decision Viljoen and his management team come to regret for the rest of their careers. More on that later. Yet to understand why Fiji Airways is now in such challenging circumstances, it is worth examining in some detail the extraordinary expansion of the airline in recent years, reflected in the size of its fleet.
It has two leased Airbus A350-900s (The flagships Island of Viti Levu and Island of Vanua Levu), four Airbus A330 wide-bodied jets, five Boeing 737s, three ATRs for domestic and regional use and three Twin Otters for interisland services. A fleet all up of some 17 aircraft – eleven of them jets, six of them wide-bodied – as opposed to six jets in all when Fiji Airways was Air Pacific in 2011, only three of them wide-bodied.
With its 737 Max 8s mothballed and with no date for grounded Maxes around the world being given the green light to fly, the retirement of some of the older 737s has had to be delayed. But with the border closures that have accompanied the Covid-19 pandemic, the entire fleet is largely grounded except for the cargo flights that are still permissible. These are flown by a small number of pilots. The rest – along with all of the international cabin crew – have been shown the door.
Domestic services, of course, continue, so that the ATRs and Twin Otters are still flying. But what many Fijians don’t realise is that Fiji Airways doesn’t own any of its late model aeroplanes. Not a single one. They are all either leased or subject to loans that must be serviced. Indeed the airline’s sole assets – aside from the older 737s – are its new Flight Training Centre at Nadi Airport and the expensive flight simulators used to train not only Fiji Airways pilots but pilots from throughout the Asia Pacific. These would be a valuable asset in normal times but not when the majority of the world’s airline fleet is grounded and many thousands of pilots are suddenly out of work.
When the Covid border closures began occurring in March, Fiji Airways was already in a vulnerable position. For the 2017 financial year, it recorded a record profit of $95.8 million dollars. By 2018, that profit was down to $55.3 million – a 42 per cent fall attributed to fuel costs, adverse foreign currency movements and fleet and infrastructure investments. While the 2019 results have yet to be announced, Andre Vijoen was warning even last year that the airline was facing a “challenging” trading environment. And behind the scenes well before the Covid crisis, there was growing concern, even alarm, about the future.
Privately, there was talk of the almost $100-million profit of 2017 turning into potentially a $100-million dollar loss. On the Fijian side, a significant part of the blame for this was laid at the feet of Qantas – which owns 46 per cent of Fiji Airways – but competes against it on the Sydney route, not only with the long-standing flights by its low cost subsidiary, Jetstar, but now by the parent airline with the Flying Kangaroo on its tail. At the end of March 2019, Qantas planes returned to Fiji after a two decade absence – during which it had a codeshare arrangement with Fiji Airways – by launching a direct service between Sydney and Nadi four times a week.
That alone was regarded as a provocation in that Fiji Airways lost many of those Qantas passengers who had previously travelled on its aircraft under the codeshare. But when it announced plans to extend the four flights a week to a daily service, the gloves came off. Andre Viljoen went public slamming Qantas for damaging Fiji Airways. “It is certainly alarming when your major shareholder and long-standing commercial partner all of a sudden becomes your major competitor,” an angry Viljoen told the Sydney Morning Herald.
The Fiji Airways CEO was also reflecting deep anger in the Fijian government – which has a controlling interest in the national airline through its 51 per cent share. The Minister responsible for Fiji Airways is the Attorney General and Minister for Economy, Aiyaz Sayed- Khaiyum, who has always had a testy relationship with Qantas and has done much to reduce its influence on the Fiji Airways board. Quite reasonably, the AG sees control of the airline as an issue of sovereignty – of Fiji having an unquestionable right to determine the management of its national airline. He regularly refers in public to the importance of Fiji Airways as the sole airline the country can rely on in times of disaster or political upheaval, when other carriers simply fly off. But as minnows in the relationship with the whales at Qantas – albeit with the authority of a sovereign government as opposed to a large corporate – the AG and Andre Viljoen aren’t cut much slack by the notoriously aggressive Qantas CEO, Alan Joyce, and his management team in Sydney.
There’s an element of the personal of all of this because that team includes a Fijian who was formerly part of the management at Air Pacific, the forerunner to Fiji Airways. Narendra Kumar left Fiji some years ago to live in Australia and has risen to the top of Qantas, acting in the positions of Chief Financial Officer and head of Qantas International. Rightly or wrongly, Aiyaz Sayed-Khaiyum believes Kumar carries a chip on his shoulder about the success of Fiji Airways and is working with his feisty Irish boss to do everything possible to clip the airline’s wings.
When Qantas announced its plan to begin its daily service between Sydney and Nadi last year, the tension between the major shareholders escalated to a higher level and became a government to government issue. The Prime Minister, Frank Bainimarama, raised the issue of Qantas’s aggressive behaviour when he met his Australian counterpart, Scott Morrison, during his first official visit to Canberra last September. But while Morrison may have been able to speak informally to Alan Joyce asking him to cut Fiji Airways some slack, he doesn’t control Qantas in the same way that the Fijian Government controls its own airline. Qantas was totally privatised 25 years ago and doesn’t take direction from the Australian Government.
So it’s against this sorry background – simmering conflict between the 51 per cent Fiji Airways shareholder, the Fijian Government, and its 46 per cent shareholder, the behemoth Flying Kangaroo – that out of the blue came aviation’s worst nightmare – a global pandemic that grounded most of the world’s airline fleet practically overnight. Fiji Airways has extended the suspension of its passenger services until at least September. While Qantas has suspended its international services until at least June 30 2021. Any resumption of services depends, of course, on Covid-19 being eradicated or suppressed or the formation of a Pacific travel bubble. And with virus transmission accelerating in most parts of the world, along with active community transmissions in Australia and New Zealand, it’s anyone’s guess when services can fully resume.
Having been grounded in March, it’s said that Fiji Airways would have run out of money altogether in July without government assistance. This accounts for the rapid decision in May to disband most of its workforce. 775 Fiji Airways employees were made redundant, including all 400 flight attendants – the human face of the airline made up of some of Fiji’s brightest and most personable men and women.
It is, of course, a personal tragedy for them, forced onto the street without warning and being obliged to cope as best they can. Once the thriving and dynamic home of Fiji Airways – truly the nation’s pride – Nadi and the West is now a place of heavy hearts and considerable personal suffering. Some former Fiji Airways staff are relying on their families, some have taken to small scale farming or selling their household possessions and one has even become a drag queen. But each has a poignant story to tell of literally being shot out of the sky by Covid-19 and coming down to earth with a tremendous thud. And with no idea when or if they will be able to fly again.
It is also a tragedy for the nation because there are now real fears of the airline being forced out of business altogether. The aviation industry the world over is highly precarious and much bigger carriers than Fiji Airways have begun to falter. To survive as an airline, you need modern, fuel efficient planes not on the ground but in the air and filled to as much capacity as possible to be able to break even, let alone make a healthy profit. As we’ve seen, Fiji Airways was already facing difficulty even before the Covid crisis. So sadly it may not take a great deal in the current environment to push it over the edge.
Faced with the prospect of no money at all by July to meet his $38-million dollar a month in lease and loan payments, Andre Viljoen turned to the government for support. And in May, Aiyaz Sayed-Khaiyum went to the Fijian parliament seeking approval for $455-million dollars in government guaranteed loans to keep the national airline afloat. The allocation was passed unanimously but the big question is what happens when that money runs out. At $38-million a month in aircraft leasing and loan costs alone – plus maintenance, remaining aircrew and other staff, maintaining the domestic services and general infrastructure and the cost of storing the 737 Maxes in the Australian desert – it won’t be long before the $455-million is exhausted. And the big question then is whether the parliament will approve another allocation. Are Fijian taxpayers willing to keep putting money into Fiji Airways to keep it afloat when no-one knows when this crisis will end? The brutal truth is that the industry body, IATA – representing 290 airlines around the world – predicts that the earliest business will return to pre-Covid levels is 2024. That’s right. Four years from now.
It’s potentially a nightmare scenario for Fiji Airways and for Fiji. Because if the airline eventually can’t hold on, it will be the Fijian taxpayer – through the government guaranteed loans – that will be left holding the baby to the tune of hundreds of millions of dollars. The aircraft subject to leases and loans will thunder down the runway in Nadi and vanish into the horizon forever leaving behind a massive bill that would keep the country indebted for years. And also be a crushing blow to Fiji’s national superannuation fund – the FNPF – to which the airline owes millions in loans.
Why, you may ask, can’t Fiji Airways simply send back the planes it no longer uses? Well, as Andre Viljoen told the Nadi Chamber of Commerce, that’s because the airline, and therefore the country, is “in a noose”. Returning the aircraft, he said, is impossible because of the contracts Fiji Airways has signed with financial institutions and leasing companies. “These companies and the banks – the financiers and the leasing companies – provide you with a loan to rent the aircraft. When you get an asset of that value, I can assure you that you sign an agreement that is so deep. In fact, I call it a noose and you sit with this noose and there is no way that you can wriggle out of it”. Mmm.
Viljoen said defaulted payments could lead to the liquidation of the airline. “If you miss a few payments, they take them back, all of the aircraft. And all of the future payments immediately become payable and that will put you in liquidation before you even blink. These loans and leases have cross default clauses. If you failed on one, they all become due and payable”. Well, how’s that for plain speaking? As the Fiji Times duly extrapolated, defaulting on loan or lease payments for one aircraft could make Fiji Airways lose everything and go belly up. So it’s $38-million dollars a month to cover all the leases and loans or the whole lot goes.
Part of the shock of the Fiji Times story was undoubtedly because the country is largely unaware of the magnitude of the gamble that the airline and government are taking that the grounded fleet will be back in the air before it all becomes unsustainable. But for a business in which the Fijian people are the majority shareholders, it seems extraordinary that a lot of what happens at Fiji Airways isn’t open to more scrutiny. And that includes the decision to purchase the Boeing 737 Max 8 over its Airbus equivalent, the A320neo – a decision that in retrospect, has been an unmitigated disaster.
The purchase decision reportedly came after sales teams from Boeing and Airbus were called to Nadi and Viljoen and his management team went back and forth between adjoining rooms trying to whittle down the price. In the end, Airbus evidently said it couldn’t come any lower to match the deal Boeing was offering and so the decision was made to go for the Max. It appears, however, that in exchange for its bargain, Fiji Airways signed a contract with Boeing in which the Maxes cannot be returned for any reason, including, as it happens, not being able to fly. Boeing has agreed to pay Fiji Airways an undisclosed amount in financial compensation but handing back the keys and going down to the lot at Airbus to get A320neos isn’t an option.
So Fiji Airways is saddled with planes that have been grounded because the FAA – the air safety regulator in the US – has deemed them unsafe. The FAA is still working with Boeing to iron out the software issues that evidently caused the Indonesian and Ethiopian disasters and we still don’t know when the Max will be declared airworthy. Even when they are back in the air, they seem certain to still be regarded with a degree of wariness by the travelling public yet will be a mainstay of the Fiji Airways fleet for years to come. How much this will be a handicap for the airline only time will tell. But it will be a big one if the old slogan “if it’s not a Boeing, I’m not going” becomes “if it’s a Boeing Max, I’m not going under any circumstances at all”.
The Fiji Airways crisis is yet another burden for the now perpetually over-burdened Aiyaz Sayed-Khaiyum, who along with having his finger in most pies in Fiji, has played a key role in decision making at Fiji Airways through successive CEOs. He insisted on Fiji Airways opening a service to Singapore over the objections of Viljoen and his predecessor, Stefan Pichler – who argued that it wouldn’t be financially viable – and in more recent times has asked for a direct service to Rarotonga, where he has formed a close relationship with the Cooks islands Deputy Prime Minister and Finance Minister, Mark Brown.
The AG’s eyes and ears at Fiji Airways are through Viljoen’s number two, Shaenaz Voss, who is personally close to Aiyaz Sayed-Khaiyum and could be a possible successor as CEO should Viljoen eventually opt for a one-way ticket out. In the current febrile atmosphere at FJ HQ, there are rumours that Viljoen is unhappy but with so many challenges all around him, he undoubtedly has a lot to be unhappy about. He certainly looked less than pleased when the AG obliged him to be at his side in full public gaze at the recent budget consultations – an overtly political exercise that any Fiji Airways chief should have been spared.
So where to from here? Some people are asking why Fiji Airways can’t come to some arrangement with Qantas in which the two airlines join forces and weather the current crisis together. Even if this were to mean Fiji Airways coming under the Qantas wing and the government surrendering a degree of control in the running of the airline, this is surely a less bitter pill to swallow than the loss of Fiji Airways altogether. Because one thing is certain. Were Fiji Airways to crash, it would be a crushing blow to the national psyche. And if there is any way to maintain the Fiji Airways brand, it is infinitely preferable to losing it altogether.
Such an outcome would require an accommodation between the airline’s two main shareholders that has hitherto to been notably lacking. But if there was ever a time for humility and compromise – with perhaps the encouragement of the Australian Government as honest broker in an act of solidarity with Fiji – this is surely it. Because as things stand, an end to the Covid crisis that would see Australia and New Zealand travellers flying again anytime soon seems to be the biggest South Sea bubble of all.