Another private airline to be grounded in Vietnam

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Brad Pitt and Angelina Jolie and their children arrive in Con Dao Island on a Bombardier jet they leased from Air Mekong during their trip to Vietnam in November 2011

Huge investment and high input costs have forced another private airline in Vietnam to shut down, while those still operating are failing to make profits.

Air Mekong, the carrier belonging to Halong Investment and Development, or BIM Group, recently announced that it will ground all flights as of March 1.

After the last flights scheduled for February 28, the airline will return its four Bombardier CRJ900 airplanes to the lessor, US-owned Skywest Airlines and begin the rebuilding process.

In an interview with VnExpress, Vo Huy Cuong, deputy chief of the Civil Aviation Authority of Vietnam (CAAV), said the carrier's restructuring will revolve around seeking new airplanes.

It will probably reorganize its personnel as well, Cuong said, adding that Air Mekong will continue its other businesses activates during the shake-up.

Tuoi Tre Wednesday quoted an unnamed source from CAAV's Air Transport Agency as saying that it will very likely take the airline quite some time before it's able to resume operations.

Even though Air Mekong's representatives had previously insisted to the press that the shutdown was not caused by its financial difficulties, Tuoi Tre reported that the carrier has been suffering increasing losses since it was established two years ago.

The newspaper said during the first 15 days of January this year, the carrier paid the Vietnam Air Petrol Company, known as Vinapco, VND1.8 billion (US$85,685), lowering its debt to the fuel provider to meet the rate guaranteed by banks.

It also found that the BIM Group has invested VND800 billion-VND1 trillion ($38.1-47.6 million) into Air Mekong over the past two years; its operations cost up to VND4 billion ($190,412) a day.

Speaking to Tuoi Tre, CAAV Chief Lai Xuan Thanh said high operation costs and the huge initial investment required to enter the industry make it hard for airlines in Vietnam to earn profits while exclusively engaged in the air transport business, Thanh said.

For example, Air Mekong and Indochina Airlines have relied too heavily on foreign-contracted services, including costly maintenance, he said. Indochina Airlines closed in December 2010 after incurring losses of VND400 billion ($19 million) in less than a year of becoming operational.

Other local airlines also face problems associated with outsourcing services.

Luu Duc Khanh, CEO of private budget VietJet Air, said his company has been able to get 20-25 percent of its input costs under control.

Representatives of other Vietnamese airlines, though admitting their awareness of the problem, have said they cannot fulfill their needs locally.

They said they employ foreign pilots and engineers who command high salaries the minimum salary for a foreign pilot hovers around $10,000 per month, while an engineer expects no less than $7,000 immediately upon being hired.

According to Tuoi Tre, 300 of Vietnam Airlines' 800 pilots are foreigners.

Air Mekong currently employs 40 foreign pilots, while the number is 50 at VietJet Air, and 54 at the budget carrier Jetstar Pacific Airlines.

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