Cash-strapped Fiji Airways is stuck with its expensive leased A350-900s. According to the airline’s CEO, Fiji Airways cannot break the leases. The CEO also says the argument from some quarters to send the planes back to their owners is unrealistic. Meanwhile, Fiji Airways is bleeding US$18 million a month in cash and has accessed a $210 million loan guarantee to survive.
Fiji Airways in a hangman’s noose
In a speech last week to the Nadi Chamber of Commerce and Industry, Fiji Airways managing director and CEO Andre Viljoen likened the lease agreements to a hangman’s noose.
“I call it a noose, and you sit with this noose, and there is no way you can wriggle out of it.”
The comments were reported by Repeka Nasiko in The Fiji Times last week.
“These companies and the banks, the financiers and the leasing companies provide you with a loan to rent the aircraft,” Mr Viljoen said.
“When you get an asset of that value, I can assure you, you sign an agreement that is so deep.
“If you failed on one [payment], they all become due unpayable.”
The Fiji Airways A350s offered a future of opportunities
Fiji Airways leased two A350-900 from Dubai Aeronautics Enterprise Ltd last year. At the time, the glittering new planes stood ready to open new horizons for the airline. Fiji Airways’ Managing Director & CEO, Mr. Andre Viljoen said the A350s offered “a future of opportunities.”
Less than 12 months later, the two big Airbus planes are the proverbial albatross around the airline’s neck. Mr. Viljeon said he could not send the aircraft back because they got outfitted to Fiji Airways’ specifications. These specifications may not suit other airlines.
It is a problem for the state-owned airline that was facing financial hurdles before 2020. The downturn highlighted and exacerbated this. Fiji and Fiji Airways is highly dependant on international tourism. However, in March, the vast majority of Fiji Airway’s international schedules were suspended.
A travel alert issued by Fiji Airways on July 14 notes international flight cancellations now run through to the end of August. International services usually makeup 95% of Fiji Airways’ business and tips $470 million into the airline’s coffers annually.
A350s staying at Fiji Airways, despite the cost
Meanwhile, like airlines everywhere, Fiji Airways continues to pay out millions each month in fixed costs. Mr Viljeon told the Nadi Chamber of Commerce the airline’s recurring monthly costs were approximately US$18 million. The A350 leases make up a significant portion of this.
It has lead to calls to send the planes back. The airline has also faced criticism for procuring the A350s in the first place. Mr Viljeon said the first option isn’t going to happen.
It is reported that the airline got a reasonably good deal on the two A350s. They were due to go to Hong Kong Airlines, but that airline canceled owing to its own difficulties. At the time, Fiji wanted to turbocharge its tourism industry. Upgrading the Fiji Airways fleet was seen as a way to do so, despite declining profits at the airline.
There was talk of flights to Dallas and Chicago. But some pundits argued the A350 leases was based on vanity and prestige instead of economics and rationality.
With the two A350s now sitting idle at Nadi Airport, Fiji Airways may be rueing its decision to sign those lease agreements. But, in fairness, Fiji Airways could not have predicted the havoc that 2020 would bring. Right now, Andre Viljoen is cutting costs where he can and hoping for the best.
