Vietnam Airlines: The Flag Carrier That Needed a Rescue

Vietnam Airlines is the clearest case in the country of a state champion that was built for a market that stopped existing. Through the 1990s and 2000s it was the only serious airline Vietnamese people could fly, and it used that position to acquire a modern fleet, a global network and a service reputation that outstripped most of its Southeast Asian peers. Then a private low-cost carrier arrived, then a second one, then the pandemic, and the flag carrier discovered that a balance sheet designed for monopoly could not absorb three years without passengers. This article explains how the carrier was built, why it needed rescuing, what the rescue cost and what the company looks like now. It is part of the Vietnam Company Stories hub.

How was Vietnam Airlines built into a national flag carrier?

Out of the civil aviation department of the Ministry of Defence, over four decades. The airline traces itself to 1956, when the government in Hà Nội established a civil aviation service with a handful of Soviet aircraft, but the commercial company called Vietnam Airlines dates from 1993, when the state separated the airline from the regulator and gave it a corporate structure.

The 1990s and 2000s were the construction phase. Đổi Mới economic reforms opened the country to trade and tourism, the United States lifted its embargo in 1994 and the airline began replacing Soviet Tupolevs with Western jets: leased Boeing 767s first, then Airbus A320s and A321s, then Boeing 777s. By the middle of the 2000s it flew to Europe, Australia, Japan and Korea and had a hub at Hà Nội’s Nội Bài and another at Hồ Chí Minh City’s Tân Sơn Nhất, the two airports that between them still handle the majority of the country’s passengers.

The state used the airline the way it used other national champions. It was an instrument of diplomacy, with routes opened to Paris and Moscow for political reasons as much as commercial ones, an employer of tens of thousands, and a customer for the country’s airport operator, air traffic control and catering companies, most of which were also state-owned. The airline’s subsidiaries in ground handling, catering, cargo and technical services became substantial businesses in their own right and are still where much of its profit is generated.

The important point about this period is that Vietnam Airlines never had to compete on price at home. Regional carriers such as Pacific Airlines, founded in 1991 and later part-owned by Qantas as Jetstar Pacific, were too small to matter. The domestic market grew with the economy and the flag carrier took the growth by default, an arrangement described in the wider piece on how state giants and private empires divide Vietnam’s economy.

Why did the airline move upmarket while a low-cost rival took its market?

Because management believed a flag carrier should be a full-service airline and that the low-cost segment could be left to its Jetstar Pacific affiliate. Between 2015 and 2019 Vietnam Airlines took delivery of Boeing 787-9 and Airbus A350-900 widebodies, retired its 777s and A330s, won a four-star Skytrax rating and joined the SkyTeam alliance, all while Vietjet went from zero to more than 40 percent of domestic passengers.

The strategy was not irrational on its own terms. The widebody fleet was needed for long-haul routes where Vietnam Airlines had no domestic competitor, the four-star rating helped it win corporate and premium leisure traffic, and the affiliate structure meant it had a low-cost brand in the market, at least on paper. The problem was execution. Jetstar Pacific lost money almost every year of its existence, could not match Vietjet’s cost base and was constrained by a joint venture with Qantas that neither partner was willing to fund properly. When Qantas finally handed its 30 percent stake back for nothing in 2020, the unit was renamed Pacific Airlines and became a wholly Vietnamese problem.

The upmarket move also loaded the balance sheet. Widebody aircraft were financed with a combination of export credit, commercial loans and operating leases, and in aviation a leased fleet is a fixed cost that does not disappear when the passengers do. By 2019 the group had roughly 100 aircraft, about VND 100 trillion in revenue, a net profit of a little over VND 2.5 trillion and, crucially, equity of under VND 20 trillion supporting total assets of around VND 76 trillion. That is a thin cushion for an airline, and it is the number that mattered when the borders closed.

The 2014 equitisation and 2016 sale of 8.8 percent to ANA Holdings of Japan for about US$108 million were meant to begin a transition to a mixed-ownership company. In practice the state kept more than 86 percent and ANA’s influence was limited to board seats and codeshares. The airline listed on the Hồ Chí Minh City Stock Exchange in May 2019 under the ticker HVN, roughly two years after Vietjet had, and with a smaller market capitalisation than its private rival by the time it did.

What happened to Vietnam Airlines when the borders closed?

It lost money on a scale no Vietnamese company had reported before. The consolidated loss was roughly VND 11 trillion in 2020, VND 13 trillion in 2021 and around VND 10 trillion in 2022, or on the order of US$1.4 billion in total, and by the end of 2021 shareholder equity was negative. Revenue fell from about VND 100 trillion in 2019 to roughly VND 40 trillion in 2020.

Vietnam sealed its borders in March 2020 and did not reopen them to ordinary tourists until March 2022. Domestic flying recovered in the second half of 2020, collapsed again during the long 2021 lockdowns in Hồ Chí Minh City and the south, and only stabilised in 2022. Through all of that the airline was paying for or leasing more than 100 aircraft, most of them built for international routes, and employing around 20,000 people whose wages it cut but could not eliminate.

Management did what airlines everywhere did. It negotiated lease deferrals, cancelled or pushed back deliveries, flew cargo in passenger cabins, operated repatriation charters for the government, sold older aircraft and engines and borrowed short-term from state-linked banks. It also launched, in November 2021, the direct flights to San Francisco that it had been planning for two decades, on the theory that a long-awaited route would recover faster than a crowded one. None of it was enough to offset the fixed costs of a full-service fleet with almost no passengers.

The accounting consequence was as serious as the cash one. Under Vietnamese listing rules a company with three consecutive years of losses and negative equity is a candidate for compulsory delisting. HVN shares were placed under warning and then under control, auditors qualified their opinions on going-concern grounds, and the exchange repeatedly signalled that it was weighing the rules against the obvious political impossibility of delisting the flag carrier. The company was eventually granted time to submit audited accounts and a recovery plan rather than being removed.

How did the state rescue package actually work?

Through two instruments approved by the National Assembly in November 2020 and executed during 2021. The first was VND 4 trillion of loans at zero interest, refinanced by the State Bank of Vietnam through three commercial banks, SeABank, MSB and SHB. The second was a VND 8 trillion rights issue, in which the state capital manager SCIC bought the government’s entitlement so that the airline could raise equity without diluting state control.

The design tells you a great deal about how Vietnamese state finance operates. The government did not simply inject cash from the budget, which would have required a different legal process and drawn criticism from private airlines. Instead the central bank refinanced commercial banks that lent to the airline, so the cost appeared as forgone interest rather than as spending, and the equity came from SCIC, an existing state holding company, so it looked like an investment decision rather than a bailout. The loans were originally for three years and were extended in 2023 and again later because the airline could not repay them on schedule.

ANA, the only significant non-state shareholder, did not take up its rights and was diluted to under 6 percent. Retail investors who did participate were buying into a company with negative equity on the promise that the state would not let it fail, which turned out to be correct. The rights issue completed in September 2021 at VND 10,000 a share, the par value, while the market price was several times higher.

The private carriers objected loudly. Vietjet and Bamboo Airways argued, with some justice, that they had lost money too and received only the industry-wide measures, fuel tax cuts and fee deferrals, that applied to everyone. The government’s position was that the flag carrier was a strategic asset with a national network obligation and that state shareholders were entitled to protect their investment. The episode is a useful reminder of how the state treats its own companies compared with the private sector, a theme that also runs through the story of the Bamboo Airways collapse, which no rescue came for.

Why did Pacific Airlines matter so much to the recovery?

Because the low-cost subsidiary had accumulated debts to lessors and suppliers that it could never repay, and in 2024 those creditors agreed to write off roughly VND 4.5 trillion of them in exchange for the return of the entire fleet. That forgiveness was booked as income by the parent and was the single largest reason Vietnam Airlines reported a consolidated after-tax profit of around VND 7.3 trillion in 2024, its first since 2019.

Pacific Airlines had been the flag carrier’s answer to Vietjet since 2007, when Qantas bought into what was then a small Hồ Chí Minh City-based carrier and rebranded it Jetstar Pacific. It never worked. The unit operated a mixed, ageing fleet, could not match the private rival on costs and was starved of capital by two owners with different priorities. After Qantas exited in 2020, the airline’s losses fell entirely on the parent, and by early 2024 it had stopped flying altogether to hand back its aircraft.

The restart later in 2024 with a handful of A321s leased from Vietnam Airlines itself was a reset rather than a recovery. Pacific Airlines now operates as a low-fare feeder inside the group, with the parent’s aircraft, crews and systems. Whether Vietnam Airlines can run a genuinely low-cost unit in that configuration is doubtful, but the subsidiary no longer threatens the group’s solvency, which is the point.

The wider lesson from the Pacific story is that a full-service state carrier cannot easily incubate a budget brand. AirAsia, Scoot and Jetstar succeeded where their parents gave them independent management, separate cost structures and the freedom to cannibalise the parent. Vietnam Airlines gave Pacific none of those things, and the market share went to a company that had them by design.

What does Vietnam Airlines look like after the rescue?

A recovering airline with a stronger operation than its balance sheet suggests. By 2024 it was carrying more than 22 million passengers, revenue was back above VND 100 trillion, load factors had returned to pre-pandemic levels and the international network, including China, India and the United States, had been rebuilt. The fleet is roughly 100 aircraft, with about 30 widebody 787s and A350s and the balance A321s and A321neos.

In late 2024 the National Assembly authorised a further recapitalisation of up to VND 22 trillion, and during 2025 the company executed the first tranche, a rights issue of about VND 9 trillion in which SCIC again bought the state’s share, which finally restored positive equity. The loans from the 2020 package were extended and partly repaid. The state’s holding, moved from the Commission for the Management of State Capital to the Ministry of Finance when the commission was dissolved in early 2025, remains above 80 percent.

Fleet renewal is back on the agenda. The company has signed for 50 Boeing 737 MAX aircraft, its first Boeing narrowbodies, with deliveries planned from the late 2020s, and is working through the Pratt & Whitney engine inspections that grounded a dozen or more A321neos at various points in 2024 and 2025. The direct San Francisco route has been joined by plans for more North American and European capacity, and the airline has positioned itself as the primary long-haul operator at the new Long Thành airport when that facility opens.

The share price has recovered too, and by mid-2026 HVN traded at levels that valued the company at several times its 2020 low. That partly reflects the operational rebound and partly the market’s conclusion, confirmed by three separate National Assembly resolutions, that the state will fund the flag carrier through whatever comes next.

What should founders, investors and operators take from the Vietnam Airlines story?

The first lesson is that state ownership is both a subsidy and a tax. It supplied the airline with a monopoly, cheap aircraft finance, political routes and, when disaster came, a rescue. It also meant slow decision-making, an inability to shrink the workforce, a subsidiary it could not fix and a capital structure that required a parliamentary vote to change. Private competitors could move faster in every direction.

The second lesson is about fixed costs and the length of a shock. Vietnam Airlines was not badly run in 2019 by regional standards; it was profitable, well rated and reasonably efficient. What it lacked was the equity buffer to survive a three-year zero-revenue event. Any operator in a capital-intensive business should stress-test not for a bad quarter but for a lost year, and ask who will supply capital if that happens. For the flag carrier the answer was the state. For most companies there is no such answer.

The third lesson concerns how the Vietnamese system rescues its companies. It prefers instruments that look like loans and investments to ones that look like spending, uses state holding companies and central-bank refinancing rather than the budget, and protects state control above all. The same pattern appears in the banking sector, where forced mergers and zero-dong nationalisations handled failing lenders, as described in the article on Vietnam’s bad-debt machine and the forced bank rescues. Anyone doing business with a state enterprise should assume it will survive and also assume that its priorities in a crisis will be the state’s, not its counterparties’.

Finally, the story shows the limits of premium positioning in a market driven by first-time consumers. A four-star rating and a widebody fleet are assets on international routes. At home, where the median passenger is choosing between a bus and a fare, they are costs. The flag carrier now has to be two airlines at once, and its history suggests that is the harder of the two jobs.

Can Vietnam Airlines ever be privatised?

Not in any meaningful sense in the foreseeable future. The state holds more than 80 percent, foreign ownership in Vietnamese airlines is capped by law at 34 percent, and every rescue decision since 2020 has been made on the explicit premise that the government will retain control. What is possible is a further reduction of the state’s stake to somewhere above 51 percent, which was the stated goal of the 2014 equitisation and has never been reached.

The obstacles are practical as much as ideological. A strategic investor would want influence over fleet, network and labour decisions that the state is not prepared to cede; ANA’s experience as a passive 8.8 percent holder, diluted twice without taking up its rights, is not an advertisement. Domestic investors with the capital to matter are conglomerates that either own a rival airline, as Sovico does, or have their own reasons to avoid a business that requires a parliamentary vote to recapitalise.

A more plausible path is partial privatisation of the profitable subsidiaries. The catering, ground handling, cargo and maintenance businesses generate steady margins, have clearer accounts and could attract strategic partners without raising the sovereignty questions that the airline itself does. Some of those units are already listed or have minority investors. Selling more of them would raise capital for the parent while leaving the flag carrier where the state wants it.

The most likely outcome, then, is a Vietnam Airlines that remains a state company with a listed minority, competes with Vietjet at home and foreign carriers abroad, and turns to the National Assembly whenever the next shock arrives. That is not the model most economists would design. It is the one Vietnam has, and the airline has now demonstrated, at considerable cost, that it works.

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