Tuesday’s announcement of Vinpearl Air came just weeks after Vingroup inaugurated a factory to build the fast-growing Southeast Asian economy’s first domestic automobile brand.
The group’s aggressive expansion has drawn investor concern as the new businesses will require hefty amounts of initial capital.
Vinpearl Air, new aviation unit under Vingroup, will initially focus on training pilots. (Photo: Reuters).
For its move into aviation, Vingroup joins hands with Canada’s CAE Oxford Aviation Academy to train pilots, which are in short supply in Vietnam and other Asian markets.
“Vinpearl Air will initially focus on training human resources to meet the demand both local and international markets,” one of Vingroup’s officials said.
A company official said Vinpearl has plans to operate its own airline in the future. “We are on the process of filing document to establish a licensed carrier,” the official told the Nikkei Asian Review.
If successful, Vinpearl Air will become the sixth airline in Vietnam. The five existing players — state-owned Vietnam Airlines and VASCO, low-cost carrier Jetstar Pacific Airlines, and private carriers Vietjet Air and Bamboo Airways — served more than 27 million passengers in the first half of this year.
The launch of the aviation unit came after Fitch Ratings said on July 1 that it had withdrawn ratings on Vingroup because of insufficient information from the company.
Before this move, Fitch’s rating on Vingroup’s stood at B+ with a negative outlook.
Nguyen Viet Quang, Vingroup’s vice president told local media after the withdrawal that Vingroup’s investment in the automotive sector, called VinFast, is “highly risky, so it would certainly face a ratings downgrade.” He said that if Vingroup wanted to remain rated by Fitch, it would have to abandon car manufacturing.
“We have to sacrifice the benefits [of being rated] in order to focus and mobilize all resources on the VinFast project,” Quang said.
Factories of VinFast and smartphone unit VinSmart came into operation within the past one year, in a bid to diversify the group beyond its core property business. Capital expenditures for VinFast alone are estimated at $3.5 billion, according to the Hanoi-based analysis company SSI Research. The group posted a revenue of 21.8 trillion dong ($941.7 million) for the first quarter of 2019, down 23% on year. Profit after taxes fell 2% to 1 trillion dong.
Apart from VinFast, VinSmart and Vinpearl Air, the group is preparing other big projects, including organizing the country’s first Formula One Grand Prix next year in Hanoi.
Workers inspect a car rolling off an assembly line during the opening of the Vinfast auto plant in the Vietnamese city of Haiphong. (Photo: Reuters).
Investors are becoming wary of the risks associated with the group’s rapid expansion, Standard & Poor’s said in a December report. Vingroup’s entry into the auto industry, “where it lacks expertise and experience, has increased operational pressure over the short term,” the rating agency said.
While acknowledging Vingroup’s strong sales forecasts, SSI Research said in a June 11 report there was concern over “the hyper-aggressive expansion of various new sectors that requires substantial initial establishment and a significant length of time to reach optimal levels.” “Hence, we do not exclude the possibility that the Group may need to raise
more funds, either via equity or debt,” SSI added.
Vingroup shares closed at 116,800 dong Wednesday, up 0.7% from the previous session. Shares have gained more than 16% year to date.
Ha Vinh, an individual investor, said many international conglomerates were eventually forced to narrow down their businesses to some core verticals as diversification faced difficulties.
“I don’t have enough information to figure out if Vingroup is moving forward, but many new projects, such as retail and car production, are expected to face losses in the coming years,” Ha said.
Tomoya Onishi – Nikkei Asian Review
