VIETNAM 2005

Vietnam Aerospace Market TRAN Bang, (class X2000 - Supaéro 2004), Eurocopter .

Vietnam Market Overview Over 15 years of adapting the market oriented model, the economy of Vietnam has made considerable progress. Vietnam is a relatively big market with a population of 83 million, half of which is within the working age. The country is also ranked second in Asia for economic growth (between 6 to 9% a year). Vietnam has the favorable geographic conditions of the Asia-Pacific region - one of the most dynamic regions in the world, an open market for domestic and international investors and the advantages of the young workforce. All of these contribute to the economic development and to the creation of the demand of exchange and traveling. With the favorable economic conditions, the air transportation sector has experienced a rapid and sustainable growth of more than 10% per year. The need to expand the fleet of regional and international aircrafts becomes increasingly important. Consequently, the market of services (infrastructures, maintenance, aerial telecommunication, equipments, etc) has experienced a remarkable growth. There are a total of 48 airports of all sizes in Vietnam. The largest ones are Noi Bai International Airport (Hanoi), Tan Son Nhat International Airport (Ho Chi Minh City) and the future Long Thanh International Airport MARKET / ENTERPRISES

(located in Dong Nai, 40km from Ho Chi Minh City, maximal capacity of 80 millions of passengers per year, capital estimated to be invested: US$8 billion, project starting in 2007). With a network of 25 international and 30 regional destinations, the country has become a promising market for the aerospace manufacturers. Civil transport market: The Airbus (EADS)-Boeing duopoly The civil and freight transportation market is mainly shared between Vietnam Airlines, the national flag carrier, and Pacific Airlines, a shareholding company. During the period of 1996-2002, the average growth rate of passenger transport was 9.5% per year. This number decreased by 1% in 1997 and by 2% in 1998 due to the Asian financial crisis in 1997. From 2000, the national transportation industry has been enjoying a significant growth rate of about 15% per year, thanks to foreigner passengers. In 2002, the number of passengers of the two airlines doubled compared to that of 1996. The freight transport experienced the same performance during this period with a total growth of 70%. In 2004, the growth rate in the number of passengers Vietnam Airlines was 16% in comparison with the year before. For the 1st quarter of 2005, the carrier managed to increase its revenue by

25% compared to the same period in 2004, accounting for 52.4% of the company’s revenue objective of the year. The number of foreign visitors during the first quarter wass estimated at 8775001. Vietnam Airlines has recently expanded its network to connect Hanoi and Ho Chi Minh City with the hubs in Europe (Paris, Frankfurt, Moscow), in Asia-Pacific (Seoul, Busan in South Korea; Nagoya, Tokyo in Japan; Melbourne in Australia) and soon with the hubs in the US (San Francisco or Los Angeles). Vietnam Airlines serves 2 market’s segments: regional and international markets. The regional market is the domestic routes and the routes to the nearby countries (South-East Asian countries, China, Hong Kong, Macao and Taiwan). In the 90s, the econo1.

General Statistics Office, Vietnamese Ministry of Foreign Affaires

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After more than a decade of reinforcing its fleet and reputation in the South-East Asia region, Vietnam Airlines is in the phase of expansion to become one of the firstranked air transporters in the region. The actual fleet of Vietnam Airlines2 : • 10 Airbus A320- 200 ; • 5 Airbus A321-200 (plus 10 new A321-200, delivered from 2006); • 6 Boeing 767-300 • 6 Boeing 777-200 (plus 2 Boeing 777-200ER leased from ILFC in June and October 2005) • 9 ATR-72 • 2 Fokker 70 Pacific Airlines operates 1 Airbus A320-200 and 2 Boeing 737-400. The market share for this share-holding carrier is still very modest (10%).

mic activities of Vietnam were concentrated in this region. These activities resulted in the demand of business traveling and tourism. The high demand has allowed Vietnam Airlines to expand its regional fleet. Not only focusing on the nearby countries, Vietnam Airlines is now also profiting from the economic, technological and cultural cooperation between Vietnam and Europe, Japan and the US. Moreover, the community of 2 million Vietnamese in the US and in Europe is also a potentially important market for the carrier. To meet that demand, Vietnam Airlines is reinforcing its long haul fleet in order to be capable of flying directly (no transits) from Vietnam to the hubs in Europe, Japan and the US. Vietnam Airlines has ordered 5 brand new Airbus A321 aircrafts in 2002 and 10 more in 2004. The flag carrier also managed to have 7 Boeing 777-200ER in operation (4 bought, 3 leased). In 2005, Vietnam Airlines has ordered 4 Boeing 787-8 for the period 2009-2010 and 11 additional aircrafts of this family in option before 2013. Vietnam Airlines plans to operate 49 aircrafts by the end of this year and about 75 aircrafts by 2010. The value estimated for the orders for this period is approximately US$ 4 billions. Recently, the Vietnamese government proposed to the parliament a modification project on the civil transportation law that opens the market to any private investors, as well as foreigners. This modification is belie-

ved to improve the competitiveness and the transparence of the transportation industry. Anyway, the competition between air transporters will be harder. One of the priorities of Vietnam Airlines now is to build and to modernize its fleet with the new airplanes well adapted to the company’s specific markets. Regional aircraft market: advantage Airbus and ATR The regional air transport segment serves 16 domestic destinations (Ha Noi, Ho Chi Minh City, Da Nang, Hue, Hai Phong, Dien Bien Phu, Phu Quoc, Vinh, Cam Ranh, Qui Nhon, Rach Gia, Da Lat, Buon Me Thuot, Chu Lai, Pleiku, Tuy Hoa) and the nearby ones (Bangkok, Minila, Hong Kong, Taiwan, etc). The aircrafts used for these routes are the Airbus’ short and medium range aircrafts and the ATRs (ATR: Avions de Transport Régional, a 50-50 joint-venture between Alenia Aeronautica, Group Finmeccanica and EADS-European Aeronautic Defence and Space company). The exploitation of the Airbus and ATR aircrafts started with the cooperation between Vietnam Airlines and Air France in the 90s. The first phase of the modernization of Vietnam Airlines’ fleet was the cooperation with European manufacturers to improve the company’s reputation. The Soviet-era aircrafts were withdrawn from the fleet during this phase. Not only the aircrafts, the mainte-

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nance services and equipments were also supplied to Vietnam Airlines so that the carrier could rapidly improve its performance, security and therefore its reputation. The airline also became one of the first operators in Asia of the Airbus best-seller family A320. Starting by leasing Airbus aircrafts, after about a decade of rapid development, Vietnam Airlines has built a fleet of 25 aircrafts of the family A320 and 9 ATR-72. In 2002, Airbus signed the first contract with Vietnam Airlines for 5 A321-200 aircrafts. In 2004, the carrier ordered 10 additional A321200. “The A320 and A321 have proved to be an enormous success in service with Vietnam Airlines for more than a decade. The latest order for the A321 confirms our long term confidence in the product and will enable Vietnam Airlines to meet the needs of the country’s fast growing aviation market,” said Vietnam Airlines’ President Nguyen Xuan Hien. "We are also particularly proud that the excellent relationship between Vietnam Airlines and Airbus has contributed significantly to the development of economic and trade co-operation between Vietnam and Europe." “Vietnam Airlines was one of the earliest operators of the A320 in Asia and we are naturally delighted that the airline continues to have great confidence in our products for its future development. With its outstanding passenger appeal and low operating costs, I am confident that the A320 Family will help keep Vietnam Airlines ahead in the highly competitive Asian market.” said Airbus President and Chief Executive Officer Noël Forgeard3. The contract financing is partially provided by foreign banks such as ABN Amro and Natexis Bank Populaire (US$133 and 15 millions, respectively), the public banks in Vietnam and the Vietnamese government. According to the official sources, the list prices for these 2 contracts are respectively US$ 250 and 750 millions. 2.

Source: www.nationmaster.com, figure May 2005. 3. Source: EADS press communication, 2004.

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Vietnam Airlines uses also 9 ATR aircrafts, of which 3 ATR-500 were ordered in 2001 with a contract value of US$ 50 million. The ATR aircrafts serve the routes in Indochina to the small airports that are inaccessible by the larger aircrafts because of the insufficient length of runways or/and lack of airport equipments. Boeing, on the contrary, was not officially present in Vietnam until the late of the 90s. One of the reasons for the absence was the embargo of the US4 that prevented the use of aircrafts with American technologies in Vietnam. Long-range aircrafts market: Advantage Boeing To serve the direct international routes to the hubs in Europe, NorthEast Asia, Australia and North America, Vietnam Airlines deploys the new Boeing 777-200ER and also some 767’s. In June 2005, Vietnam Airlines signed a contract for 4 Boeing 787-8 and became the 8th customer of this Boeing’s aircraft family. An option for another 11 aircrafts of this family for the period 2010-2013 is also included in the contract. The contracts for 4 Boeing 777-200ER (2004) and 4 Boeing 787-8 (2005) are worth respectively about US$ 680 and 500 millions at list price. The purchase was officially announced during the state visit of the Vietnamese Prime Minister to the US in June 2005. The purchase financing is partially funded by Eximbank (Export-Import Bank), the official export credit agency of the US. The contacts with the American manufacturers and operators began with the first visit of the Vietnam Airlines officers, organized by Delta Airlines. Boeing, while negotiating with Vietnam Airlines to supply the wide body, long haul aircrafts, lobbied for the lifting of the US embargo, waiver of the Jackson-Vanick amendment5 and the negotiation, conclusion and approval of the Bilateral Trade Agreement. The giant claimed to support the bilateral aviation agreement that would facilitate the transport of passengers and cargo between the two countries. Boeing is also behind MARKET / ENTERPRISES

the US government to support Vietnam to access the WTO. “Trade and tourism will grow in Vietnam and we really want to participate in that growth”, said Christopher Flint, country executive for Vietnam-Boeing Commercial Airplanes. It is expected that the new trade era will benefit the aircraft manufacturer’s business in Vietnam. Cooperating with Singapore Aerospace Manufacturing (SAM), Boeing organized a symposium to promote the aircraft manufacturing industry in Vietnam. In short term, Boeing will not invest directly in this domain in Vietnam, but has promised to cooperate with its partners to advance the industry. Along with the efforts from Boeing, the official contacts of American aerospace companies such as GE, Raytheon International, Lockheed Martin Global, Gravitas Digital Solutions, etc. aimed at supplying the services and equipment for the air transportation industry. Not only in trade sector, Boeing is also actively participating in humanitarian missions such as rising funds for storm and flood victims, mine clearance and other worthy causes. Recently, in cooperation with Microsoft and Vietnam Airlines, Boeing has participated in a computer education program by the Vietnamese government to improve the computer level for young people. All those activities, according to Flint, are to consolidate the presence of Boeing in Vietnam. Vietnam Airlines, on its side, negotiated with Airbus for a purchase or a location of the Airbus’ long range aircrafts as the A330/A340, without abandoning the negotiations with Boeing. Finally, Vietnam Airlines decided to purchase Airbus aircrafts for the regional routes and Boeing airplanes for the long-haul network. Specialized air transportation market: Helicopters The offshore petrol platforms, the tourism services and the aerial photographic services are among the clients of this sector. There are 2 operators in this sector in Vietnam: VASCO (Vietnam Aviation Services Company) and SFC (Southern Service Flight

Company); both are the subsidiaries of the Vietnam Airlines Corporation. The helicopters currently in service are the Russian Mi-8, Mi-17 and the European Eurocopter EC155B and Super Puma AS332L2. One of the most profitable services is the flights to the petrolium offshore platforms. The Eurocopter helicopters are used for this service. Eurocopter now continues with projects with SFC to increase the fleet. American competitors such as Bell Helicopter and Sikorsky have made efforts to penetrate into the helicopter transport sector but the market is still small and difficult to enter. Airport equipment, services and maintenance market As the fleet expands, the need for the standardization and modernization of services (ground services, air traffic control, airplanes maintenance services, etc) becomes more and more important. By 2020, about 15-17 millions of passengers are expected to pass through the airports in Vietnam. In consequence of the growth of air traffic, the revenue of the airports doubled during the period 1996-2002. The airports in phase of expansion are: Tan Son Nhat (10 km from Ho Chi Minh City center, a new terminal with runway to receive the very large airplanes will be in service from 2006, budget US$220 million, funded mainly by Japan), Noi Bai (in Hanoi) and Danang International Airport. The maximum capacities of these 3 airports are 15, 20 and 5 millions of pas4.

The embargo prohibited all the activities of trade, investment or technologies exchange between Vietnam and the US and its allied. Vietnam suffered the embargo from 1964 (North Vietnam and then all Vietnam) to 1995. 5 The Jackson-Vanick amendment is an amendment to the US’s Trade Law in 1975, denying the most-favored nation status to all countries that did not permit free emigration. It was aimed at the USSR, which restricted the emigration of Jews.

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sengers per year respectively. However, Tan San Nhat International Airport is too close to the city to be further expanded in the future. To avoid the overcharge of the airport, a new airport project of Long Thanh in Dong Nai province, 40km from Ho Chi Minh city is expected to be launched in 2006. With an area of about 5000 hectares, the airport can receive a maximum of 80 millions passengers per year. This airport is large enough to be in service for several decades. Long Thanh Airport will be able to receive the super jumbo jets such as the A380. The investment for the airport is estimated at $8 billion US dollars, according to Vu Pham Nguyen Tung, vice-director of the Airport Department of the Civil Aviation Administration of Vietnam (CAAV) during an interview with Tuoi Tre Journal. The first phase of the project needs about US$ 3 million to transform Long Thanh to the same size as the actual Tan Son Nhat before 2010. The ambition of CAAV is to upgrade Long Thanh to an air transport hub of the South-East Asia region, Vu added. To satisfy all the development and security criteria and to cope with the very high competitiveness of air transport in the region, CAAV needs a large amount of airport equipment and services. The technologies and services are chosen from the European, Japanese or American suppliers. For instance, in 2003, the value of aviation equipments and services imported was estimated by Export America and US Department of Commerce at approximately US$ 390 million. The total contract value for suppliers from American companies is about US$160 million. In general, the European companies had the largest share of the market. The American suppliers took from 10% to 30% market share depending on the type of the projects. The fact that the European companies have set up their business in Vietnam for two decades with the Vietnamese partners has enable the European standards to be the prevailing norms. The American suppliers, therefore, encountered several difficulties to enter the

Photo: Hervé Morel, Eurocopter A SFC’s Eurocopter EC155 for the offshore services.

market. Anyway, the competition in the airport equipments, service and maintenace market is very strong for all the suppliers. The maintenance of the fleet of Vietnam Airlines takes place at the A75 (Ho Chi Minh city) and A76 (Hanoi) centers. From 1998, Vietnam Airlines has been capable of performing the maintenance on its A320 family and ATR airplanes. From 1999, the maintenance check started on Boeing aircrafts. The national carrier’s target is to improve the capacity of overall maintenance work on its fleet. The partners of Vietnam Airlines in this domain are the airlines (such as Air France, Japan Airlines), the airplane manufacturers (such as EADS (Airbus) and Boeing), and the engine manufacturers (GE, Snecma). In June 2005, during the 46 th Paris Air Show at Bourget, France, Vietnam Airlines signed a contract of 3.5 million euros with EADS Test & Service for an ATEC Series 6 test bench and associated programs for the maintenance of the Airbus A320/321, ATR and also the Boeing 777 of the fleet. The progress of the maintenance activities allows Vietnam Airlines to export the services. The National Agency for Civil Aviation of Laos has signed a contract with Vietnam Airlines to supply the maintenance services, provide crew, pilot and technicians for its Airbus

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A320s. Space market The Vietnam space market is still limited in size and applications. The priority domains are the telecommunication, television and civil aviation navigation applications. The mediumsize geostationary satellite project Vinasat was officially announced in 1995 and was approved in 2002. The satellite launch is planned in the period 2007-2008 after several postponements because of the negotiations with the adjacent countries on the position and the frequencies of Vinasat. Vietnam is now negotiating with Japan and Tonga islands to reach the final conclusion on this point. Vinasat will have 25-30 transmitter-receiver sets (each set will be able to handle up to about 500 telephone channels or 46 television channels). The satellite weighs about 2.2 tons and has the lifetime of 15 years. Once in service, the satellite will bring the radio, television and telephone services to all the communes in Vietnam. Some aviation navigation applications are also foreseen. The total investment for the project is estimated at about $250300M, including the satellite building 6.

Source: Export America and US Department of Commerce. However, the figures are not official and are estimated.

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and launch services, the establishment of a control center, the training and the technology transfer. The constructors that have registered to bid are NPOPM (Russia), Alcatel Space and Astrium (EADS), Lockheed Martin Space Systems et Nec–Toshiba–Orbital Science Corporation (a JapanoAmerican firm). In July 2005, the Vietnamese Ministry of Natural Resources and the Environment signed a contract worth of €19.3 M (about US$23M) with EADS Defence and Communication Systems (DCS) for the complete environmental and natural resources monitoring systems, to be operated by the Vietnam National Center for Remote Sensing. The system supplied by DCS consists of a receiving station for satellite images from SPOT and ENVISAT, a processing and distribution center and 15 specialized applications systems for operational and research purposes. The total system will serve the main public operators, specifically the Vietnamese ministries and project partners such as the Ministry of Agriculture and Rural Development, the Ministry of Fisheries, the Ministry of Natural Resources and the Environment, the national civil defense agency and the Vietnam Petroleum Institute. The fifteen applications will be employed in such activities as risk prevention and support for emergency rescue services, the observation and planning of agricultural land use for the cultivation of major crops including rice, the surveillance of maritime and coastal zones, research in connection with the preservation of resources in inland waters and forests, and geological studies for the petroleum and mining industries7. Up to now, such a project is one of the most complex and innovative ones launched in Asia. The project extends the scientific and technical cooperation agreement in the remote sensing field between France and Vietnam for over 15 years. In this cooperation, EADS has always been the key partner.

Image credit: Astrium SPOT5, Earth optical observation satellite (Astrium, EADS).

7.

Source : EADS DCS press communication

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