[HONG KONG] A London High Court has refused VietJet Aviation’s application for a stay and ruled the Vietnamese carrier must pay around US$180 million to an aircraft leasing firm starting this week, bringing to a head a years-long legal dispute that started during the Covid-19 pandemic
The money must be paid in three equal instalments beginning May 15 and ending in late November, and represents a win for FW Aviation, a unit of a London buyout fund that specialises in leasing aircraft.
FitzWalter Capital, co-founded by former Macquarie Group executive Ben Brazil and backed by UK and Australian pension funds, has been battling VietJet in court for years after the airline fell behind on rent for four planes. FitzWalter has long argued that VietJet appeared to have the money to make good on its payments and had simply chosen not to.
A High Court Judge in a May 1 ruling agreed, stating that “for practical purposes, I am in no doubt that the defendant could, if it chose, find the funds that are required to be found to meet the judgement of this court in the same way that the defendant is able, apparently, to find funds to purchase aircraft or enter into other contracts relating to its business activities”.
That will come as a blow to VietJet, which set out in an Apr 27 witness statement all the ways in which it would not be able to pay the money. The statement painted a catastrophically dire picture of an over-leveraged airline with, at most, two weeks of cash on hand and one that has nearly exhausted all of its credit lines.
VietJet said that it “remains optimistic that it will overturn the original judgement in the appeal scheduled to be heard later this month”. FW Aviation declined to comment.
A NEWSLETTER FOR YOU
Friday, 8.30 am
Asean Business
Business insights centering on South-east Asia’s fast-growing economies.
In its Apr 27 statement, VietJet said it would be “unable to pay the entire judgment debt without having to re-arrange its business and quite possibly dismantle parts of it”. VietJet’s financial footing weakened considerably during the pandemic and while it says it is now back to operating normally, it “continues to be subject to significant financial constraints”.
Unrestricted cash of around US$45 million is needed for day-to-day operations, such as paying salaries and suppliers, the carrier said, and the company has no physical assets that it could liquidate to pay the judgment. All 110 jets in its fleet are subject to leasing arrangements of one kind or another, it added.
The May 15 payment deadline will also be a reckoning for VietJet’s founder and largest shareholder Nguyen Thi Phuong Thao, who has a net worth of around US$1.5 billion according to the Bloomberg Billionaires Index.
Madame Thao, as she’s better known, is the face of the airline, which at one point made headlines for its bikini-clad cabin crew marketing. After the 54-year-old launched the budget carrier in 2011, it took just five years to go public. The airline is currently worth almost US$1.9 billion.
Hanoi-based VietJet, which mainly serves domestic routes in Vietnam as well as regional destinations such as China, Thailand and South Korea, has made ambitious bets, ordering 200 Boeing 737 Max jets and almost 120 Airbus single-aisle aircraft, but so far has not taken delivery of most of the planes.
A grounding of a “material part of” its 110-strong fleet would force significant flight cancellations, VietJet said. With Vietnamese law requiring passenger refunds on scheduling disruption, that would mean a liability of around US$600 million alone, it stated.
“This would therefore be a further direct consequence of the judgement that would force VietJet into liquidation,” VietJet said.
VietJet also said a default would wipe out about US$500 million it’s already spent on advanced payments for 318 new aircraft to Airbus and Boeing, which would become unrecoverable.
Those pre-delivery payments were funded by bonds and other financing arrangements and failure to make ongoing jet payments would also trigger a cross-default, leading to bondholders and lenders being owed the principal amount, which “VietJet could not afford to do”.
As per the schedule set out by the court, VietJet must pay US$60.5 million on May 15, another US$60.5 million on Jul 31 and the final amount for a total of US$181.5 million on Nov 28. BLOOMBERG
