Opportunity Saigon?

Vietnamese media reports that the investigation centres around a US$31m (A$m) loss on fuel hedging made by the carrier. Some reports claim that the two employees, as well as then CEO Luong Hoai Nam, ignored a board directive not to hedge the airline’s fuel, which later resulted in losses as the price of fuel fell during 2009 following the global financial crisis.

Nam, who unexpectedly resigned from the carrier in November, is understood to have been taken into custody over the incident, while Australian Foreign Affairs Minister Stephen Smith confirmed in early January that Freeman and Marsilli were not being detained and are free to move around Vietnam, but must not leave the country until they are cleared to do so.

In a statement issued during late December, Qantas Group CEO Alan Joyce defended the actions of the executives, saying Jetstar Pacific wasn’t the only airline to incur big losses on fuel hedging in the past year. “The losses that were incurred were a part of global business risk,” he said on January 8. “There’s no criminal or illegal irregularities in what the staff has been involved in. They have done what every airline executive has done, what every airline executive around the world did to cope with the high fuel price.”

Joyce added that the Qantas Group was cooperating with the investigation, and was hoping for a speedy resolution to the situation which would allow Freeman and Marsilli to return to Australia.

Qantas owns a 27 per cent stake in Ho Chi Minh City based Jetstar Pacific, which was formerly known as Pacific Airlines, with 70 per cent held by tourism conglomerate Saigon Tourist Corporation and the State Capital Investment Company. The airline operates a fleet of four Boeing 737-400s and a single Airbus A320 on domestic routes within Vietnam.

Prior to the latest set of hurdles, Qantas was to have lifted its stake in the carrier to 30 per cent during October this year, with the eventual aim of taking a 49 per cent holding in the Vietnamese carrier.

Shortly after news of the two executives broke in Australia, the Civil Aviation Authority of Vietnam issued a report claiming that Jetstar Pacific had shown significant safety deficiencies. Fairfax media quotes the CAAV report as saying: “…many mistakes and violations were covered up deliberately by JPA from the supervision”. The report also said that the “quality assurance system operated very poorly and ineffectively, therefore … many violations occurred within the maintenance process. Managerial staff was actual causes (sic) and fully responsible for this system error.”

In one incident, it is claimed that a defective anti-icing pipe which should have been replaced was instead welded and placed back into the aircraft by an unauthorised contractor.

Further, the CAAV claimed that Jetstar Pacific had illegally sacked engineers Australian Bernard McCune and New Zealander Digger King after the two tried to raise safety issues to the management of the airline. The CAAV also reportedly forced the airline to stand down Australian maintenance manager David Andrew and Bulgarian technical quality manager Atanas Stankov from their positions.

Jetstar later issued a statement which refuted McCune and King’s claims, noting that the two were dismissed for performance issues as well as failure to report safety issues.

Joyce responded to the CAAV report by admitting that it had identified a number of administrative and quality issues which have since been rectified by the airline. “We remain confident in our investment in Jetstar Pacific and confident in the airline’s total commitment to safety,” he said, adding, “The CAAV identified some issues and these have already been addressed by the airline.”

Nevertheless, the reports were seized upon by key unions in Australia, with the Transport Workers Union saying it had already been investigating the Qantas Group for alleged safety breaches for some months. “The unions want to investigate how a Qantas subsidiary is behaving overseas and whether or not they are flouting international aviation safety laws,” said TWU spokesman Tony Sheldon.

The union representing Qantas’s Australian maintenance engineers, the Australian Licensed Aircraft Engineers Association (ALAEA), meanwhile said the CAAV’s findings reflected poorly on the Australian aviation regulator, CASA. “The Vietnamese aviation watchdog has put Australia’s own (CASA) to shame by bringing this incident to public attention,” ALAEA federal secretary Steve Purvinas said in a statement.

Joyce hit back at Purvinas’s comments, saying, “Yet again, the leadership of these unions is taking an opportunistic and cynical approach based on a very poor understanding of this issue.

“Statements made by the ALAEA’s Steve Purvinas, in particular, indicate he is ill-informed as far as the CAAV report and Jetstar Pacific are concerned.”

Joyce added that a number of independent safety audits of Jetstar Pacific had been undertaken in recent years, with the last one conducted in October 2009. “This audit concluded there were no safety concerns with Jetstar Pacific’s operations and that the airline met regulatory requirements,” he said.

“Audits are a standard practice in the aviation industry and are an important way that we can continue to improve safety in all our businesses.”

The CAAV report and investigation into the actions of the three executives appear to come after it emerged in November 2009 that the Vietnamese government had notified the carrier that it could no longer use the Jetstar name as it was against local aviation law to use the name of a foreign carrier.

Jetstar said at the time that it was in discussions on the matter, and noted that its business services agreement signed by the state owned shareholders meant that the carrier would not be forced to rebrand until the end of the agreement.

Some analysts believe that the three events represent a concerted campaign by hardline elements of the Vietnamese government to derail the Qantas investment in Jetstar Pacific, which is effectively the first privatisation of a state owned entity in Vietnam.

The timing of the actions by authorities also comes as Qantas prepares to increase its holding in Jetstar Pacific in October this year when it is able to exercise an option for a further three per cent stake in the carrier.

Other reports claimed that there was cultural friction between the Australian executives and some local employees. In a vetted statement provided to Fairfax newspapers, Marsilli denied that there were specific tensions between the two cultural groups.

In an interview with Radio Australia on January 15, Jetstar CEO Bruce Buchanan (who also sits on the Jetstar Pacific board) hinted that domestic politics in Vietnam have been behind the series of setbacks, rather than a vendetta against Qantas. “I don’t believe that there is any fight going on between Qantas and the Vietnamese authorities,” said Buchanan. “I think we’ve seen some very sensitive political issues play out in Vietnam.

“I don’t think that’s towards Qantas. I think we’ve been a good partner of the Vietnamese government on what has been a very complex and difficult path in terms of the first privatisation of any government owned entity in Vietnam.

“You come up against a lot of issues when you’re taking a company in a communist country that is state owned and introducing commercial partners into that.”

Despite the trials that Qantas has been through in recent months over Jetstar Pacific, Buchanan maintains that the Qantas Group was not planning to divest itself from its investment in the low cost carrier. “We remain committed to our investment,” he said.