Solutions to HVN's financial challenges

Improved Business Performance

According to the reviewed semi-annual consolidated financial report for 2024, HVN had a roughly 20% rise in net revenue over the same time in 2023. Although the cost of products sold climbed, it did so at a slower rate, resulting in a gross profit of more than VND 6,703 billion, a considerable 124% increase over the first half of 2023.

HVN's financial revenue for the first half of 2024 fell by more than 28.7% compared to the same period, totaling more than VND 329 billion, while financial costs rose by more than 93.5%, totaling more than VND 2,924 billion. Selling and administrative expenditures increased by more than 8% and 1%, respectively, totaling more than VND 2,279 billion and VND 946 billion. Associates' profits increased, reaching roughly VND 140 billion.

After subtracting expenditures, the firm reported a net operational profit of over VND 1,022 billion, up from a loss of more than VND 1,030 billion in the same time previous year. Another bright area in HVN's economic picture for the first half of this year is the enormous growth in other revenue, which jumped to nearly VND 5,365 billion from VND 73 billion in the same time last year, marking a 7,351% gain. Finally, the firm made an after-tax profit of more than VND 5,401 billion, compared to a loss of more than VND 1,386 billion during the same time in 2023.

HVN attributed the considerable improvement in consolidated business performance in the first half of 2024 to successful operations by both the parent firm and its subsidiaries. Pacific Airlines' other consolidated income increased significantly as a result of debt forgiveness provided by its partners under an aircraft payment agreement.

HVN's leadership stated that the transportation market's recovery, combined with proactive implementation of both short-term and long-term measures such as flexible load management, maximum cost reduction, and service price negotiations, significantly improved the corporation's operations. These methods proved especially beneficial in the first quarter of 2024, which is a high season in the airline business. As a consequence, the parent company's business performance improved significantly compared to the same period last year.

"However, due to seasonal factors, April and May are the lowest periods for the domestic aviation market, leading to less effective business results compared to the first quarter of 2024. For the first six months of 2024, the corporation recorded consolidated after-tax profit and parent company profit of VND 5,402 billion and VND 1,263 billion, respectively, a sharp increase compared to losses in the same period last year," HVN's leadership noted.

In describing actions to address stock control, corporate executives stated that the organization had finalized a restructuring plan for the period 2021-2025 and had presented it to shareholders and authorities for approval. Under this strategy, the firm will adopt a comprehensive set of remedies to address the negative equity condition between 2024 and 2025, including enhancing adaptability and profitable operations, restructuring assets, and increasing revenue and cash flow through financial investments.

Three Solutions to Maintain Business Continuity

Despite the resumption of favorable business performance, HVN got an audit opinion that cast doubt on its capacity to continue as a going concern. According to the audit report, as of June 30, 2024, the firm and its subsidiaries' short-term liabilities exceeded its short-term assets by VND 40,787 billion. Overdue payables were VND 13,351 billion, while equity was negative at VND 11,633 billion.

The audit report stated that the corporation's ability to continue operations would be primarily dependent on the extension of loan payments from commercial banks, credit institutions, and payables to suppliers and lessors, as well as the success of the restructuring plan, which is currently being reviewed by relevant authorities.

"These conditions, along with other issues presented in Note 2(c), indicate the existence of significant uncertainty that may cast doubt on the corporation and its subsidiaries' ability to continue as a going concern," the audit emphasized.

However, in the notes to the financial statements regarding the going concern assumption, HVN stated that the corporation's Board of Directors and Management regularly assess the impact of financial difficulties and implement solutions to ensure that the corporation and its subsidiaries can continue doing business. The remedies currently being adopted include:

First, in terms of operational management: Due to positive developments in the aviation industry, the corporation transported approximately 7.96 million domestic passengers and 3.63 million international passengers in the six months ending June 30, 2024, representing 88.84% and 123.05% of the same period in 2023.

The corporation adjusted its fleet usage plans, flight schedules, and routes to meet market demand, peak periods, and post-COVID-19 travel needs, optimizing operational costs and fleet utilization. The corporation also focused on managing and developing services and customers on high-revenue and high-profit routes to improve asset utilization and cash flow from business activities.

In terms of operating costs, the corporation continued to implement cost-optimization policies, improve fleet efficiency, and negotiate price reductions to save costs. Additionally, the corporation continually reviewed and optimized ground services, in-flight services, and engine and aircraft maintenance to enhance service quality and ensure economic efficiency.

Second, regarding operating capital: The corporation and its subsidiaries have been negotiating with commercial banks to secure additional credit lines for business operations. As of June 30, 2024, the total credit limit    signed with commercial banks was VND 29,800 billion. Additionally, the corporation has a VND 4,000 billion refinancing loan from Southeast Asia Commercial Joint Stock Bank, Maritime Commercial Joint Stock Bank, and Saigon - Hanoi Commercial Joint Stock Bank under Circular No. 04/2021/TT-NHNN dated April 5, 2021.

During the period, banks agreed to extend credit limit  s for short-term loans that were repaid on time and met the conditions and regulations of the State Bank of Vietnam. The corporation is confident that it will maintain its current credit limit  s in the coming year and ensure payment of principal loans as they come due.

The corporation successfully negotiated with certain creditors to renegotiate repayment schedules for long-term loans and financing leases that had come due.

The company and its subsidiaries continue to negotiate price reductions and deferred payment schedules with partners, with many agreeing to lower pricing (for aircraft leasing and maintenance expenses) or prolong payment schedules (for aircraft leasing, flight management, flight services, and so on).

On the one hand, the corporation and its subsidiaries are actively seeking financial sources to pay overdue debts to suppliers, which totaled VND 13,351 billion as of June 30, 2024. On the other hand, the corporation is also continuing negotiations and calling for support from partners in reducing and extending overdue payment deadlines. The corporation believes that partners have been and will continue to actively support the corporation and its subsidiaries in the years to come.

Third, regarding the restructuring plan: The corporation has completed the overall plan to address the difficulties caused by the COVID-19 pandemic and the restructuring plan for the 2021-2025 period, which has been reported to relevant authorities. The corporation is also presenting the plans to competent authorities for resolution of difficulties and approval. These plans include three comprehensive solutions to overcome the current financial situation: (1) Solutions to improve the business results of aviation transport, including implementing measures to enhance adaptability, quickly recover, and effectively utilize production capacity; (2) Asset restructuring and divestment of subsidiaries and affiliates to increase income and cash flow; (3) Preparing necessary conditions to implement the plan to issue shares and increase equity after approval from relevant authorities.

"The management has cautiously assessed the business plan, cash flow plan, and the ability to balance funds to meet debt obligations and financial commitments, as well as the support from the government and the feasibility of the restructuring plan for the 2021-2025 period. Management is confident that the interim consolidated financial statements are prepared on a going concern basis," HVN stated.

It also noted that the ability to continue as a going concern will depend primarily on the extension of loan repayments from commercial banks, credit institutions, and payables to suppliers and lessors, as well as other solutions within the restructuring plan.