Air Vanuatu in ‘dire’ straits with debts of $110m and only two flight ready aircraft

Australian liquidators appointed to Air Vanuatu say the airline’s financial position is ‘dire’ with debts of $110m.

A report to creditors of Air Vanuatu has revealed the airline owes almost $110m, and has about $11m in assets.

Ernst & Young Australia were appointed voluntary liquidators to Air Vanuatu last Thursday, after wind up proceedings were launched against the carrier on April 24.

The report noted that prior to their appointment, Air Vanuatu’s “poor financial position had meant aircraft had been repossessed and it was unable to pay its debts”.

“It was clearly not in a position to meet its financial commitments from its own resources,” said the report, by EY’s Morgan Kelly, Andrew Hanson and Justin Walsh.

They noted that the airline had a fleet of six aircraft, only two of which were flight ready, both of them turboprops.

Another three required maintenance, and Air Vanuatu’s sole Boeing 737, which the airline had claimed was undergoing maintenance, had been repossessed.

The narrow body jet has been parked at Melbourne Jet Base since January.

“Prior to our appointment, Air Vanuatu was unable to meet the costs of parts critical to the

fleet’s operation (resulting in aircraft being grounded for extended periods of time), and

encountered issues, such as defaulting under supplier arrangements and the company’s

insurance policies,” said liquidators.

Financial records maintained by the airline were “poor” with liquidators having difficulty verifying some of the information.

One avenue highlighted for further investigation was a $30m deposit paid to Airbus for a new A220 in 2019. Air Vanuatu cancelled the order but was never refunded its money.

The report said Air Vanuatu employed 441 people which was “a high number of staff for an operation of the company’s size and nature”.

“We understand a portion of the company’s staff perform as ground staff and undertake duties at Port Vila, Santo-Pekoa and Tenmaru airports, which are essential to these airports’ operations,” said liquidators.

The “significant debt” owed by Air Vanuatu did not include the balance of employee entitlements which was unknown.

Vanuatu relies heavily on tourism.

Passengers first became aware of Air Vanuatu’s collapse when the airline cancelled flights on mass, including services to Brisbane and Sydney.

The liquidators estimated there were more than 4000 ticket holders with unused flights at the time of their appointment.

Despite the sorry state of the fleet and poor financial position, liquidators said it was their preference to attempt to continue to trade the operations of Air Vanuatu providing adequate funding was secured.

At the same time, they would explore going concern options including a recapitalisation of the business, or sale of the business and assets.

In the absence of funding, liquidators would have “no other choice but to close the business and wind up the company”, the report said.

The estimated date of completion of the liquidation was at this time uncertain, but would become clearer once an outcome for the company was confirmed.

Travellers caught up in the Air Vanuatu collapse were being assisted by Fiji Airways and Virgin Australia both of which had scheduled additional flights to Port Vila.

The report was issued ahead of the first creditors meeting set down for next Wednesday May 22 via teams.

Originally published as Air Vanuatu in ‘dire’ straits with debts of $110m and only two flight ready aircraft