Shocked by being banned from leaving Vietnam, the former general director of Jetstar Pacific, is working with competent agencies to make clear all of the airline’s matters during his term of office.

Mr. Luong Hoai Nam.

Former Jetstar Pacific’s General Director banned from leaving Vietnam

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Big losses but huge salaries – is it acceptable?

VNExpress: What is your reaction to the State Auditing Agency’s report?

Luong Hoai Nam: I agree with the figures and conclusions. I supplied that information, including the loss of $31 million by Jetstar Pacific (JPA) in 2008-2009. Still, it is a complicated story to understand and comment on accurately.

VNExpress: Could you explain the $31 million loss of JPA?

Nam: I would like to cite an example to make JPA’s petrol hedging operation more easy to understand.

Today the price for A92 petrol is 15,000 dong a litre. I’m the owner of a transportation company and I need to buy 100,000 litres of A92 petrol for my cars over the next six months. I wonder whether in the next six months, the prices for A92 petrol will rise or fall. To partly control petrol expenses, I decide to buy 50,000l of A92 petrol today, or 50 percent of the volume needed, at the price of 15,000 dong. Next, I will buy the other 50 percent on a monthly basis, based on the market price. If the price is up, I have to pay more, if it is down, I will benefit. It means that I control 50 percent of the price and “float” the remaining 50 percent.

JPA’s petrol hedging operation is similar to this example. In the context of sharp fuel price increases since early 2008, JPA decided to buy a volume of petrol in 2008-2009 to control petrol expenses. This was the decision of the JPA management board and two Australian Deputy General Directors implemented the purchase upon the management board’s authorization.

Most airlines in the world used petrol hedging operations, but this operation was an “accident” in 2008-2009 when the petrol price soared to its peak ($147/barrel) and then felt to a very low level ($30/barrel) in a short period of time.

Losses caused by these hedging operations account for a large part of the losses by airlines around the world (totaling around $5 billion in 2008 and $9 billion in 2009). Cathay Pacific (Hong Kong) in 2008 lost $980 million, and Singapore Airlines lost $572 million in the first half of 2009.

At the time JPA performed the hedging operation, when prices reached $126-137/barrel, the World Bank, the International Monetary Fund and prestigious banks and credit institutions in the world forecast that the petrol prices would increase to around $200/barrel. They were wrong.

I did some research and found only one analyst made a correct prediction about petrol prices in mid-2008: Mahmoud Ahmadinejad, the Iranian president. He argued that the petrol price would quickly drop to $70-80/barrel. We didn’t know his forecast at that time, but had we known we still would not have believed it.

I think that JPA’s loss from the hedging operation in 2008-2009 is an objective risk when the world economy fluctuated in unforeseeable ways.

VNExpress: Besides the loss of $31 million, the State Auditing Agency also concluded that the salary for JPA’s officials was too high while the airline ran at a loss and faced difficulties. What can you say about this?

Nam: JPA’s salary policy was approved by its shareholders based on the suggestion of consulting company Mercer (appointed by the State Capital Investment Corporation and Qantas) in late 2007.

For foreign managers, the pay is similar to their salary in Australia. In addition, JPA has to compensate for their expenses. For example, they have houses in Australia. When they go to Vietnam, they have to rent houses. Their children study at free public schools in Australia. In Vietnam, they have to pay school fees for international schools. They have to buy health insurance and be examined at international hospitals. Their salary in Australia is high so we have to pay them highly too.

VNExpress: Was your JPA salary high or low?

Nam: I don’t comment about my salary because shareholders and the management board decided how much to pay me. During the difficult times at JPA, I voluntarily asked for a salary reduction of 25 percent as of January 1, 2009.

VNExpress: How does your JPA salary compare with your salary at Vietnam Airlines and Pacific Airlines (the forerunner of JPA)?

Nam: I can’t compare my salary at Vietnam Airlines and at JPA because the chief of the Market Planning Department at Vietnam Airlines and the General Director of JPA are two different jobs. The duties and responsibilities are also very different.

VNExpress: Why did you suddenly resign?

Nam: I sent my resignation to SCIC on September 1 2009 and stopped working at JPA as of November 9. I presented my reasons in the resignation letter. I’m also a shareholder of JPA. I had been this company’s general director for over five years and I really wanted it to have a new chief who could create a new vitality and seek new opportunities and solutions for JPA’s development.

I’m relaxing at home now and, at the request of the State Auditing Agency, preparing to work with SCIC and JPA’s management board and executive board to make clear some JPA matters: the petrol hedging operation and salary of JPA’s officials.

After that I will do move on to a different position. I will only feel easy once these matters are cleared.

VNExpress: It is said that you resigned when JPA was in chaos. What do you say about this?

Nam: I would have resigned in late 2008 if JPA had not received losses from the petrol hedging operation. I submitted my first resignation to the SCIC on December 23, 2008, but I changed mind. At that time JPA faced a lot of difficulties, with losses from the hedging operation, lack of capital, debts as well as an unstable internal situation with flight attendants threatening to go on strike. I decided to continue the job to bring JPA through this difficult period and then leave my position.

The hedging contract expired on May 31, 2009. In June 2009, JPA broke even and by July the company had earned profits of over $1 million. Shareholders pumped an additional $30 million into JPA. The company had sufficient capital to solve its financial problems caused by the petrol crisis and the world economic slowdown and sufficient capital for its operation and development through 2010. I thought it was a suitable moment to resign.

VNExpress: After 20 years working in the aviation sector, what is your concern about the aviation market?

Nam: In my 20 years with the aviation industry, I’ve never seen any Vietnamese airline earn profits from domestic aviation services. With that situation, Vietnam cannot have a thriving local aviation market and cannot attract domestic and foreign capital to develop this market.

In Malaysia, each one million people have 8 commercial aircrafts. This figure is 15 in Australia and 0.7 in Vietnam.

VNExpress: What did you feel when your passport was seized and you are banned from leaving Vietnam?

Nam: Actually I was shocked. I’ve made more than 200 overseas trips to over 50 countries, since my first trip to the USSR to study at age 18. When I understood the reason, I felt normal and now I know what I have to do to get back my passport early.

VietNamNet/VNE