Vietnam Looks to Private Investment to Help its Aviation Industry Take Flight

By Edward Barbour-Lacey

HCMC – Vietnam has announced that it is building a framework intended to grow the level of private investment into the country’s aviation industry. In particular, public-private partnerships (PPP) have arisen as one of the main methods of investment.

According to Nguyen Duong, the deputy director of the Civil Aviation Authority of Vietnam’s (CAAV) airport management department, the country is hoping to jumpstart interest among private and foreign investors in the whole aviation industry, including airport development.

Vietnam’s aviation industry has seen strong growth over the past few years. In fact, the country was the third fastest growing aviation market in the world during the period 2001 to 2014, with an average growth rate of 14.5 percent in passenger traffic and 15.3 percent in freight.

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This growth has greatly increased the demand for new and improved airport infrastructure. The CAAV has estimated that more than VND230.2 trillion (~US$10.2 billion) will need to be invested into Vietnam’s airport infrastructure over the next five years in order to keep up with the growth rate of the industry.

Key statistics from Vietnam’s aviation industry over the period 2010 to 2014:

• An average of 12 percent growth in passenger traffic in the domestic aviation sector (annual number of passengers increased from 21.07 million to 33.16 million)
• An average of 12.67 percent growth in freight – annual quantities of cargo increased from 460,000 tons to more than 741,000 tons
• Significant growth at airports throughout the country, to include:
  • Cam Ranh: 25.5 percent per year
  • Vinh: 34.8 percent per year
  • Phu Quoc: 24.7 percent per year
  • Tho Xuan: 70.5 percent growth per year in the last two years

A number of budget airlines are also crowding into Vietnam’s market, this has helped to spur growth and competition, resulting in better prices for passengers but also adding increased pressure on airports, who are struggling to handle the increased number of travelers.

Due to the increased growth across the board within the aviation industry, Vietnam’s government has announced that it intends to increase the number of airports in the country from 22 to 26 by the year 2020. This includes the Long Thanh International Airport in Dong Nai Province, which should become operational in 2020 and will reach its maximum designed capacity by 2050, at which point it will be able to handle over 100 million passengers and five million tons of freight annually.

In a further sign of Vietnam’s seriousness about attracting investment into its aviation industry, a number of state-owned enterprises (SOEs) are gradually being privatized. For example, Vietnam Airlines has been changed from a state utility to a joint stock company. Additionally, a number of airport businesses are expected to be privatized in the near future.

Vietnam is also promulgating a number of aviation related laws, which are intended to make investment into the aviation industry easier. For example, on July 1 of this year, Vietnam implemented a revised version of its Civil Aviation Law, which primarily focuses on air carrier liability within the country. The new version of the law attempts to give added predictability to air carriers and their insurers, as well as further protection to passengers.

In an additional sign of the growth to come, both in Vietnam’s aviation industry and throughout the region, the ASEAN Single Aviation Market, an ASEAN wide agreement expected to be implemented this December, is intended to increase regional and domestic connectivity, integrate production networks and enhance regional trade by allowing airlines from ASEAN member states to fly freely throughout the region via the liberalization of air services under a single, unified air transport market. This should result in increased air traffic throughout the region and put added pressure on Vietnam’s infrastructure.

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Whether Vietnam’s infrastructure can hold up to the sky-high growth in its aviation industry will be largely dependent on whether the government can continue to simplify its regulations and further induce foreign investors to become a part of this market as it takes to the air. But it is clear that the aviation industry is set for strong growth for many years to come throughout the Southeast Asian region.

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