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.
A real big mess for Fiji Airways indeed. The Minister of Everything has never ran a business so now he has created this big mess.
Will be interesting to see the numbers on the Singapore and HK routes
While the idea of a modern fuel efficient fleet is a good one it seems the execution was wrong
The lecturing of Qantas by the PM and AG now comes back full circle , Qantas is already facing a deep financial crisis so why would they entertain talks with Fiji Airways a tiny and non consequential player for Qantas
The Minister of Everything needs to learn to let business professionals run business enterprise and not have political interference
Rajiv..Everything you said it true. Fiji PM came here telling Aust Government what they should do etc. HOW the hell were Fiji Air allowed to borrow from a Superfund. As for 2 x aircraft in the Australian desert, all of Singapore Airlines, Scoot, Silk Air and many more are there and many will never fly again. Tiger Airways here finished, Virgin International finished and both Qantas and Virgin been decimated. Hundreds pilots and thousands of crew now packing shelves at Supermarkets. I see Qantas and Virgin now flying to Fiji like a domestic carrier, not International. Patsy Evans
Aiyaz knows nothing about running a business and the PM himself chose the wrong person for AG since he’s a simple lawyer and nothing else. The pandemic however does show Khaiyum that one cannot control everything like a want-to-be authoritarian who acts childish whenever critics tell him the truth about how to do things.
There are professionals who can do a better job if allowed to do so without interference, but Khaiyum just doesn’t get the memo and now ANZ have no intentions of visiting the country until further notice for obvious reasons.
Why is Fiji Airlines still allowed to sell tickets for ights that do not exist. This is Fraud. Discount tickets from America to Sydney that they know are not leaving cannot land in Fiji and cannot fly to Sydney someone should stop this fraudulent practice. i
A question does anyone know who are the shareholders of Waqavuqa holdings?
Noose my foot. The very threat of liquidation in Fiji’s jurisdiction (introduce enabling legislation for this purpose if necessary) will be more than enough to force the leasing companies back to the negotiating table for a new agreement. So use it. But don’t do nothing. Otherwise, $455m will quickly become $700m, even assuming some revenue from early to mid next year. Meantime, the five fixed Super Max-8 737s with their fuel efficient engines could be a saving grace for the airline as in good numbers they will be interchangeable, low cost and more able to deliver profit going forward with expected lower demand on routes. The simulators seem like a good investment, but the airline will definitely need to downsize and work with Qantas who are 46 per cent shareholders – not compete with them! Dreams of being a major international carrier to hubs was fraught even before Covid-19. You do that sort of thing when you have deep reserves, not debts. Fiji Airways now needs legal and fiscal management experts and those with deep knowledge of the aviation industry. The main purpose of the national carrier is to get a good share of the profits from bringing people too and from Fiji. That should be their focus.
Fantastic to have your insight on all matters Fijian ! You are SO on the ball with everything and your forecast of problems .
Australians won’t have the budget to visit Fiji as soon as flying can happen again : Family travel in Australia is going back to the 1970’s a caravan or a camping site in a National Park near a beach . Australian banks have allowed people to put their mortgage repayments on hold to get through this crisis . $5000 holidays to Fiji wont be the first second to r third point of call on the other side of Covid .
I hate to say this and I certainly dont mean offence , shock or horror to anybody BUT ….
Sooner Fiji does deals with Chinese Governments and airlines to save them the sooner their will be a future …
In Australia we allow foreign ownership of land . We also dig minerals from the soil to earn money to keep the country going ….
Maybe just maybe these hard discussions need to be had in Fiji …
Look forward to returning to your beautiful country and islands in the future .
Paul
Only affluent Australian families holidayed in Fiji Pre-Covid because it was too expensive even then, which isnt surprising given tourism operators lost 26% in tax before a bum was even on a seat. Meanwhile the Minister for Everything is helping the Govt to haemorrhage money with “technological and international advances” while our own FNPF purse is completely dry. And No… foreign land ownership is literally the worst idea Australia has had. They’re losing their autonomy on their own field of play. China can suck eggs and fck off from Fiji; because its minerals are not for sale. Once we have a government who has the brains to actually represent the interests of Fijian people as a whole and not just a few deep pocketed individuals, AND adhere to what FICAC represents without paying them off…. only then can we reassess what is important and what is just media and greed driven sh*t.
Hi Soshal ,
Thanks for the reply and I agree with your points of view . If Australia didn’t sell minerals and land then there would be no money for foreign aid to our APAC neighbours . Although I have always wondered why the Australian Government sells land and minerals to assist other nations that don’t sell their own land and minerals . YEP Fijians are smarter than Australian’s when it comes to these issues .
Thanks, Paul. I don’t think deals with China or the large-scale sale of Fijian land to foreigners is the answer at all. In the case of Fiji Airways, it would be a disaster if the ultimate decisions on the airline were being taken in Shanghai, Beijing or Guangzhou. Just as it would be if they were taken in Dubai, Abu Dhabi or Singapore. If it comes to the point when Fiji Airways can’t sustain itself, far better for it to come under the wing of Qantas, which already owns 46 per cent of the airline. There is not only the historical connection but proximity and similar national values. And the fact that more Australians visit Fiji than anyone else makes it a far more natural fit. I hope it doesn’t come to that but I would frankly rather see Fiji Airways as a semi-independent division of Qantas than see it lost altogether. I will have a lot to say about China’s relationship with Fiji and the other Pacific nations in future articles and I’m afraid very little of it is positive. China is flexing its muscles everywhere in the world at the present time and we have never been more vulnerable. And it is imperative in my view that the region continues to align itself with the democracies or the future will be very bleak indeed.
Fiji’s National Flag Carrier was subjected to undue political interference following Aiyaz Khaiyum’s appointment as Minister. This interference is unprecedented in the airline’s history which raises questions on various commercial decisions that are overtly political in nature. Although government owned, Fiji Airways has always operated as an independent business with governance and oversight, provided by a Board of Directors appointed by the MInister of Civil Aviation. This changed with the new Minister. The debt level is unsustainable and the airline is totally reliant on external factors and protocols to return to business. The airline has little option but for the Minister to take his “humble pill” and approach the 46% shareholder (Qantas) for assistance. It will not be the first time that FJ has approached QF for assistance but Australia has always reciprocated, during Fiji’s deep hour of need and history proves this. The airline needs to be downsized and restructured to meet the new operating and market conditions of the post covid era. Lastly, FNPF and the Fijian government does not have deep pockets to continuously bail out Fiji Airways, as this reliant could potentially bankrupt the nation; as national borders reopening timeline to allow tourism flow is up in the air.
firstly I would say the biggest problem is how he has put illiterate non qualified people in positions that is way beyond the mental capacity of their brain. Mrs Shanaez Voss is there to overlook the operation as if it was only owned by her and Mr Khaiyum. Right now she has no clue on what to do and this situation was way beyond her lead. She only gets feed in information where she explains word by word like a parrot repeating itself but no clue at all. The whole aviation industry under his leadership is falling apart. From CAAF to Fiji Airways to ATS and the passing of the late CEO. He needs ministers in those departments that will know how to reconstruct the fundamentals of the whole aviation industry. Fiji Airways in my opinion expanded way to quickly to begin with when all they really depend on is Tourism. During my days of growing up as a local fijian kid I met alot of expatriates that left Fiji and they always said to me we didnt invest because the country was to fragile relying heavily on tourism. What did he do he hammered the tourism Industry with more taxes etc. I mean the service tax was the biggest fiasco in my opinion. Fiji and the leaders should have taken a huge chunk of finance and invested in more of the building industry, agriculture to attract foreign investments. Look at buisness models at low tax rates where companies set up in Fiji and.operste from taking advantage of the low tax laws. Sometimes we dont see and most importantly used the airline as a secondary cargo setup to diversify the operation. He needs to admit in his faults re set and take note from the eyes that are watching from a different perspective. I’m a proud Fijian and I believe the whole ministry needs a restructure. God bless my beloved Fiji.
Apparently the country is going backwards and made even worse with the current pandemic, more unqualified personnel means everything turns upside down which is going to have severe repercussions.
the biggest question is who owns and what part does waqavuka holdings has in this leasing and owning of aircraft assets? would be good if Graham Davis could explain! over to you Graham.
Same, I have no independent knowledge of Waqavuka Holdings other than what is on the public record. But controversy surrounding this Irish-based holding company certainly isn’t new. There was a pretty comprehensive explanation given seven years ago, in September 2013, by the former Fiji Airways, CEO, Stefan Pichler, in answer to a series of questions by the former Fiji Sun business reporter, Rachna Nath. To follow is the text of that article, which makes it plain that until the A330s are fully paid off, the German banks who financed them can repossess them if Fiji Airways defaults on the loans.
Fiji Airways managing director and chief executive, Stefan Pichler, yesterday laid to rest allegations and concerns over the ownership of the airline’s new Airbus A330 aircraft.
Questions have been raised about the ownership of the aircraft, following numerous allegations on anti-Government blogs and social media.
Mr Pichler has outlined the facts regarding theownership of three brand new aircraft, arrival of which led to enormous national pride.
The new A330s are an integral part of Fiji Airways’ plans to restore the national carrier to its role of a proud flying ambassador for Fiji.
Mr Pichler explained technicalities behind the financing structure as Fiji Airways bought new aircraft, to replace ageing and expensive leased aircraft. He refuted claims about the purchase. Here’s answers by Mr Pichler to a series of questions that have arisen.
1. Pictures show that the engine for the Airbus carries the Waqavuka name as the owners.
The engines belong to Fiji Airways, and follow the same financing structure as the aircraft itself. This structure is detailed further below.
2. Are the engines fitted to the A330 planes subject to a user pay arrangement similar to the FEA bill ?
Fiji Airways owns the engines, but in order to maintain them and support them whilst in operation and as part of the A330 Rolls-Royce purchase deal, we entered into a Total Care Services Agreement (TCA) with Rolls-Royce.
The structure of this service deal is that we pay an amount per Engine Flight Hour (EFH) per engine to Rolls-Royce for covered services which include Engine health monitoring, Engine reliability improvement & reporting, Engine Maintenance Planning (EMP) service, Engine transportation, specialist line maintenance and Engine Overhaul services.
That is best practice in our industry as it is the most efficient way to maintain and support our engines.
It is a very typical inclusive arrangement that many airlines use, especially with Rolls-Royce.
3. How was Waqavuka Financing selected and/or formed? Is Waqavuka a Fijian-owned company? What are the business activities of this company ?
Is it needed to get import credit from European banks. Does that mean Fiji Airways could not get the loan from European banks if it didn’t partner with the European Export Credit Agency (ECA) ?
Waqavuka Financing Limited is a wholly independent special purpose company based in Ireland, owned by neither the German banks (KfW IPEX-Bank and Helaba) nor Fiji Airways.
Its role is to ‘own the A330 aircraft’ until the German bank loans are fully repaid. Note that use of the word ‘own’ is a technicality, as this company is set up purely to hold the deeds of the aircraft while the loan is being paid.
Waqavuka Financing Limited is owned by a corporate managing subsidiary of Deutsche Bank. Neither Fiji Airways nor the German banks have any ownership interest in Waqavuka Financing Limited.
Once the loan is fully paid, the ownership is transferred to Fiji Airways. It is like a financial lease deal for a car or if you purchase a house or a flat. You will only get your title deed once you have fully paid.
Wakavuka Financing Limited exists only to help Fiji Airways with its European financing. It sits as a neutral party between Fiji Airways and its German lenders. Think of it as a warehouse, holding the deeds of each aircraft until the loan is repaid.
The use of a “warehouse” company is necessary in order to obtain access to funding support from the European Export Credit Agencies. That support from the European export credit agencies in turn reduces the interest rate which Fiji Airways has to pay to the German banks.
The company’s name was chosen by Fiji Airways staff to create a unique, truly Fijian link.
4. Why do Fiji Airways and the German banks need Waqavuka Financing Limited in the middle?
This is a requirement of the European Export Credit Agencies (ECA). Unless an aircraft is owned by a neutral third party, the European Export Credit Agencies will not provide support for the financing.
Without support from the European export credit agencies, the interest rate payable by Fiji Airways would be much higher and result in higher airfares for our passengers – something we are always keen to avoid.
The reason that the European Export Credit Agencies insist on the aircraft being owned by a neutral third party is to make it easier to enforce their security/collateral if needed. A neutral third “shelf company” is not likely to take steps to prevent the banks/European Export Credit Agencies from enforcing their security over the financed aircraft. The European Export Credit Agencies require this neutral third party to be located in a neutral jurisdiction to reduce the risk of local courts protecting local interests. Tax reasons make Ireland a good European location for this purpose.
The use of an intermediate company is a technique common in aircraft financing transactions, whether or not those financings involve the European or American Export Credit Agencies, whereas the Americans secure the loans for Boeing purchases.
For example, Fiji Airways used a very similar structure when it successfully financed the purchase of three B737s in the late 1990s. This is a standard aircraft financing technique, used by most airlines around the world in such transactions. All parties to the financing agreement used international aviation finance lawyers to verify and facilitate the creation of this financing structure.
5. The ownership plates on the A330 aircraft are confusing, can you explain the rationale ?
The ownership plates clearly identifies the party that currently owns the aircraft (Waqavuka Financing Limited), the party that holds the aircraft as security (mortgage) against the amounts lent by the German banks (KfW IPEX-Bank and Helaba), and finally the party to whom the aircraft will be leased until the loan is repaid (Air Pacific Ltd./Fiji Airways Ltd.).
The reference to “Air Pacific Ltd/Fiji Airways Ltd” is due to the timing of the financing co-inciding with the process we undertook to change our trading name from Air Pacific to Fiji Airways. The use of two names for the one airline was intended to avoid the need to replace the nameplates at a later date. This saved time and money.
6. What happens if Waqavuka Financing Limited goes bankrupt?
As a practical matter, Wakavuqa Financing Limited will only enter into the loan documentation for these A330 aircraft, and will do no other business. Provided Fiji Airways continues to pay all amounts that Fiji Airways has committed to pay (under the financing contracts), then it is impossible for Wakavuqa Financing Limited to become bankrupt. Problems could only arise if Fiji Airways stops making the payments it is supposed to make under the financing contracts.
In this scenario of a default by Fiji Airways, Fiji Airways is in the same position as any defaulting borrower under a home mortgage – there is a risk that the lender/mortgagee will take its security (the A330 aircraft) and sell it. In this case, however, the German Banks will look first to the European Export Credit Agencies (who provide a guarantee of Fiji Airways). It will then be up to the European Credit Agencies to decide whether to repossess our aircraft and sell them.
This is an unrealistic scenario, as the Board of Fiji Airways will make all payments on time.
7. Is the repayment to FNPF, coming from Fiji Airways’ operating profits ?
As our commercial arrangements with FNPF are confidential, we’re unable to discuss details of this in public. This would be a breach of our contract with FNPF.
But of course, Fiji Airways will repay the loan to FNPF (as stipulated in our agreement with FNPF) as to any other credit provider and this is part of the ongoing business plans. Of course the repayment of debt will impact profits every year.
The security of the pensions of all Fijians are not impacted at all, as FNPF also has a collateral against their loan.
8. How do you perceive the public discussion of this issue ?
Well, in general we are a commercially run business and do not want to get involved in any political discussion. We adhere to international financing and regulatory standards and instruments in order to have a safe, secure and profitable airline.
We serve all Fijian people. But we don’t want to be part of any political discussion.
We have a business to run in tough global market conditions. And that is what we need to focus on.
I read with some hesitancy that China may be the one to turn to for financial assistance to bail Fiji’s economy especially in salvaging Fiji Airways out of the doldrums. The Chinese mentality has never been generosity like we know it, giving from the heart as a token of love and kindness. They will give from one hand and collect from the other, even among their own culture. This refers only with the traditional folks of China who speak just their mother tongue, as they are the most difficult to assimilate into another society by adopting English as their mode of settlement into a new country. The westernized Chinese are great people many of whom have become Christians and assimilated tremendously with their children becoming westernized and adopting new attitudes and western culture. Personally, I wouldn’t trade in any huge financial sweet inducement and talk with Chinese in any shape or form, because they are endeavoring to get out of China as their only possible way of migration due to their distrust of the Chinese government. I hope Fiji does not go there for assistance as China is looking for strategic locations to spread their wings and military might. There is so much sinister happenings in China that the western world knows little about as there is no freedom of expression and speech. and a Western form of democracy.
Hi Devlin, we won’t be the only ones who’ll be very apprehensive if Fiji Airways and its majority shareholder, the Fijian Government, turns to China to bail out the airline. As you say, the Chinese record – as a transactional society in which every good deed deserves another – is invariably one of pursuing its own interests, even under the guise of assisting other nations. So the Qantas option is infinitely preferable, not least because Qantas already owns nearly half the airline.The reason why Chinese airlines aren’t flying to Fiji now is because the government won’t give them the so called “fifth freedom” to continue on from Nadi to other destinations. That would have killed Fiji Airways anyway, especially if, say, China Southern, China Eastern or Air China were to be given permission to fly on to Auckland, Sydney or LAX. Korean Air eventually couldn’t make a go of a direct Seoul-Nadi return flight after many years so there is no reason to believe any Chinese airline would be interested or they would be doing it already. And if Fiji is worried about issues of sovereignty in the running of Fiji Airways, the last thing they should do is have any relationship at all with China.
I did wonder what had happened to the Korean Air Nadi – Seoul route. With the sizeable Korean population I’m surprised KA haven’t tried to continue with it.
Let’s hope Qantas can adopt a ‘half a loaf is better than no bread at all’ approach and try to find some *mutually beneficial* way of working with Fiji Airways. After all how will wiping out the competition benefit them when they part own the competition?
Thanks Graham for your insight into the Chinese mentality which cannot be trusted through dangling the carrot to entice any unfortunate poor nation struggling to survive. I’m Chinese by birth, Fijian by nationality, and Australian by naturalization and speak Chinese and English fluently. However, I do abhor the Chinese culture being skewed somewhat that we are the pure race as being drumed into the minds of children as they grow up. I had that brain-washing from around 10 years old and scoffed my parents and other Chinese elders during my teenage years what stupid thinking it is. To this day there hasn’t been great change of thinking and respect by the Chinese to understand that all human beings are equal regardless of their culture, nationality, and religious beliefs. Speaking only their mother tongue has hindered China and its people to accept and understand the wider world, hence their ignorance has chracterized their shrewd demeanor so blantantly glaring. So beware of the Chinaman offering you a bag of money as no problem!
FIJI AIRWAYS GROUP ANNOUNCES FY19 FINANCIAL RESULTS
National airline increased passenger numbers, revenue and profits from prior year despite massive fuel, forex and competitor headwinds.
21 August 2020: The Fiji Airways Group has today released its financial results for the period ending 31 December 2019. Key highlights are as follows:
Group revenue increased by 9% to FJ$1.12 billion compared to FJ$1.02 billion for the previous Financial Year, the second consecutive year the Group crossed the F$1 billion mark for revenue.
Group Profit before Tax was FJ$ 61.2 million, compared to FJ$ 55.3 million in the previous Financial Year.
Group Operating Profit Before Tax was FJ$ 58.9 million, compared to FJ$ 50 million in the previous Financial Year.
The Group increased passenger numbers by 2% despite the significant impact of Qantas commencing flights from Sydney to Nadi in March 2019, carrying 1.7 million passengers in 2019 (compared to 1.67 million passengers during the previous Financial Year).
Mr. Andre Viljoen, Fiji Airways Managing Director and CEO, said: “The operating environment pre-COVID was already very challenging, with lots of factors adversely affecting profitability. Despite these challenges, the Fiji Airways Group grew profits by 10.7% year on year, while also outperforming the previous year in terms of revenue and passenger numbers. 2019 saw some major investments in our fleet, customer service and infrastructure, including the acquisition of two brand new A350-900 XWB aircraft, and the completion of the state of the art Fiji Airways Aviation Academy. Our key achievements in 2019 included being the launch oneworld connect partner airline, and attaining the coveted Skytrax 4-Star rating through enhanced service delivery on the ground and in the air.”
Fijian Attorney General and Minister of Economy, Hon. Aiyaz Sayed–Khaiyum said:
“I would like to thank the Chairman, Board, the CEO and his leadership Team. Notwithstanding the challenge of Qantas competing directly with Fiji Airways in 2019, it made a profit that year. From the profits of 2019, Fiji Airways has been able to fund their commitments after the global spread of COVID-19. Fiji Airways has a profit-sharing programme and Government as the majority shareholder is appreciative of Fiji Airways Board’s decision to share the 2019 profit, notwithstanding the challenges posed by COVID-19. Every single employee of Fiji Airways as at 31 December 2019, apart from the Executive Leadership, will receive $1000 as their share, whether currently employed or not.”
Fiji Airways increased frequencies to most destinations, and completed its first full year of services to Tokyo, Japan in 2019. The airline concluded six new codeshare agreements with Alaska Airlines, Air India, British Airways, Finnair, Japan Airlines and Singapore Airlines, expanding its network to 20 direct destinations, and increasing its total destination reach (including codeshare) from 69 to 108 destinations.
Mr. Viljoen added: “In the face of a number of significant market challenges in 2019, we undertook a relentless cost saving exercise which was a thorough 360 degree review of all operational expenses. We re-negotiated contracts, revamped product offerings, implemented best practices and enhanced crew and fuel management. These actions generated cost savings of FJ$ 41 million, which is a massive accomplishment. Fiji Airways also conducted a business model review, which included a ‘clean sheet’ review of our current network and future opportunities, which independently verified that our 10-year strategic plan is on track.”
“In December, our pilots started utilising the Fiji Airways Aviation Academy for recurrent and specialist training on the Airbus A330 and Boeing 737 full flight simulators. This investment is an immediate cost saver as well as a revenue generator for our airline, through the sale of simulator time to other airlines. The opening of this state of the art facility was timely, as the prevailing border restrictions would make it very difficult for us to send our pilots overseas for training. This would in turn further delay resumption of inbound tourism, in an even sever below to the Fijian economy.”
The Fiji Airways Group faced severe headwinds in 2019. Chief amongst those were high fuel prices and fierce competition from 46% shareholder Qantas.
“Fuel price continued to spiral upwards in 2019 and resulted in a year on year fuel cost increase of FJ$29 million. The ongoing volatility of fuel prices validates our fleet modernisation campaign decisions, in selecting brand new fuel efficient latest generation aircraft like the Boeing 737 MAX and the Airbus A350.”
“Qantas commenced direct Sydney-Nadi services on 31 March 2019 in direct competition with Fiji Airways. Qantas entered the market at the start of an already sluggish off-season period, and the resultant excess capacity negatively impacted yields. Loss of market share to Qantas, together with the drop in yields, dramatically reduced the profitability of our Australian operations, resulting in a negative impact upon profitability of around FJ$65 million.”
“Unfavourable foreign currency fluctuations were another factor, with the strengthening of the US dollar resulting in an increase in operating costs of FJ$11 million in 2019.”
Mr. Viljoen noted that the global grounding of the Boeing 737 MAX aircraft created additional operating complexities for the airline. To fill the gap left by the grounded Boeing 737 MAX aircraft, Fiji Airways had to ‘wet-lease’ additional Boeing 737 NG aircraft (with operating crew), and used larger A330 aircraft to maintain its schedule.
“The revenue losses and cost increases incurred as a consequence of the Boeing 737 MAX grounding were significant, but I am pleased to announce that the Company was successful in negotiating a settlement with Boeing.”
Fiji Airways Chairman, Mr. Rajesh Punja, said that Fiji Airways is now focused on survival, given the devastating and ongoing impacts of the COVID-19 Pandemic on global aviation.
“We are in the midst of the biggest crisis in the history of our industry, and we are focused on ensuring that Fiji’s national carrier not only survives this Pandemic, but thrives in the post COVID-19 ‘new normal’ environment. No stone has been left unturned in our efforts to cut costs and preserve and bolster cash reserves, at a time when many airlines around the world are faltering. Even the largest and most profitable airlines have turned to financiers and Governments for assistance. Fiji Airways is grateful for the support of our financiers who have supported us with new loans, our lessors who have offered aircraft rent payment deferrals, and of course the Fijian Government for approving a sovereign guarantee scheme to support our financing actions.”
There is a growing consensus in the aviation industry, supported by IATA, that the post-COVID-19 ‘new normal’ level of travel demand will only be 70 to 80% of pre-COVID-19 levels.
Mr Punja added: “It is obviously important to be nimble, and to take the expected ‘new normal’ levels of demand into account when planning for the future. Simply put, future revenues will likely be significantly lower than pre-COVID-19 levels. Fiji Airways, like other prudent airlines, is already implementing steps to align with this future expectation.”
Mr. Punja further stated: “In mid-2019, we faced the very real prospect of a FJ$100 million loss due to the impact of competition and fuel price increases. However, the Fiji Airways and Fiji Link teams once again demonstrated grit and resilience to deliver these results. Despite their small size, our airlines continued to punch way above their weight. Management worked tirelessly to save costs and drive yield improvements from across the network to deliver the 2019 results. The profits that we have just announced are part of our cash reserves that, along with our debt financing actions, will tide us through the current crisis.”
Mr Punja continued: “We have overcome adversities before, and despite the current Pandemic mega-shock to the world economy, we will do absolutely everything we can to spur Fiji’s economic recovery.”
Fiji Airways and Fiji Link currently operate up to 10 freighter services per week, maintaining vital supply chains for exports, trade and medical supplies. This protects primary industries and jobs for Fijians and Pacific Islanders.
Mr. Viljoen highlighted that Fiji Airways is currently working to finalise two campaigns which will be critical to the recovery of both the airline and the Fijian tourism industry. The Travel Ready campaign is aimed at ensuring the medical safety and wellbeing of passengers and staff in a COVID-19 world, and the Bula Bubble Campaign will facilitate the return of visitors to Fiji within the proposed Bula Bubble framework announced by the Fijian Government.
“We are certainly not sitting back and waiting for border restrictions to ease. I can assure all of our valued customers, stakeholders and partners that all of us at Fiji Airways and Fiji Link are working tirelessly to put measures in place which will ensure your health and safety, and to create incredibly enticing holiday packages, so that as soon as border restrictions ease, we can welcome you back to our beautiful shores with peace of mind.”
I got a headache reading all this.
Bro, read Fijileaks, which complements grubsheet. The shareholders are directors of a management firm in Ireland…..not aunty and family….as many believed due to the Wikipedia article “AIRBUS AFFAIR”, relating to Canadian prime minister receiving kickbacks from Airbus.
Victor Lal has found out the company name and the names of directors.