Vanuatu is a stunning archipelago situated in the South Pacific. However, its government statutory entities, particularly Air Vanuatu and Vanuatu Rural Development Bank (VRDB), are facing challenges due to mismanagement issues that have resulted in poor performance and financial instability over the years.
It is essential to note that these entities are not the only ones facing such issues in Vanuatu.
Other entities are also grappling with similar problems that have gone unaddressed for far too long. It is not a new issue, as merely changing Chief Executive Officers (CEOs) or boards has not yielded positive results in the past. Therefore, it is time to take action and make the necessary changes to avoid repeating the same mistakes.
This article is not intended to criticise but to offer some suggestions on the way forward.
Air Vanuatu has been struggling financially, and the previous governments’ involvement in the management of the airline has been suboptimal, leading to poor financial management, insufficient investment in infrastructure, accumulating debts, recurring financial losses, and a lack of strategic planning.
These factors have contributed to decreased efficiency, poor service quality, and a significant increase in customer complaints to name a few.
The negative impact of this on the company’s reputation has been compounded by numerous negative articles in the press and on social media platforms. Similarly, the VRDB has suffered from mismanagement, inadequate investment in infrastructure and a lack of strategic planning, misappropriation of funds, and poor loan performance. To address these issues, restructuring these entities is necessary.
Air Vanuatu
Bringing in a Strategic Partner to Take Partial Ownership of the Airline
A potential solution to enhance Air Vanuatu’s operational efficiency, competitiveness, and financial stability is to bring in a strategic partner, such as Qantas or Virgin Airlines, to take part ownership of the airline. Under this arrangement, the Vanuatu government would maintain at least a 51% stake in the company, thereby retaining control over Air Vanuatu’s management and decision-making process.
By bringing in a strategic partner, Air Vanuatu could leverage their expertise and resources to strengthen its operations.
For instance, the strategic partner could share their knowledge in areas such as revenue management, marketing, and customer service, enabling Air Vanuatu to improve its service quality and enhance customer experience. Moreover, the partner could provide access to modern technology, specialised aircraft, and training, which could upgrade Air Vanuatu’s fleet and improve its operational efficiency.
Furthermore, the introduction of a strategic partner could help Air Vanuatu increase its financial stability by providing additional funds and reducing its dependence on government support.
The strategic partner’s financial resources could be utilised to improve the airline’s financial position, support capital investments, and help Air Vanuatu expand its route network, leading to increased profitability. Overall, bringing in a strategic partner would allow Air Vanuatu to remain competitive and ensure its long-term success in the aviation industry.
An instance of mismanagement in the aviation industry occurred in 2001, when Air New Zealand encountered severe financial problems.
The airline was forced to undertake significant restructuring, which included appointing a new CEO and bringing in outside investors, such as Singapore Airlines and Brierley Investments, to provide financial support and expertise.
The restructuring resulted in significant improvements for the airline, including enhanced operational efficiency, increased profitability, and a stronger market position. The new CEO implemented a range of measures to reduce costs, improve efficiency, and increase revenue, which helped to stabilise Air New Zealand’s financial position. Additionally, the partnership with outside investors provided access to new resources and expertise, which enabled the airline to upgrade its fleet and improve its service quality.
Furthermore, the partnership with Singapore Airlines opened up new routes and destinations for Air New Zealand, allowing the airline to expand its market reach and attract more customers.
The airline also adopted a customer-centric approach, with a focus on enhancing the passenger experience, which helped to build customer loyalty and drive repeat business. Currently the New Zealand Government owns 51% of Air New Zealand ordinary shares.
Overall, Air New Zealand’s experience demonstrates the importance of effective management and strategic partnerships in the aviation industry.
Through a combination of effective restructuring, strong leadership, and the support of outside investors, Air New Zealand was able to overcome its financial difficulties, strengthen its market position, and emerge as a successful and profitable airline.
Air Vanuatu’s good performance would have a positive impact on the country’s tourism industry as it is the national carrier and a significant player in the tourism sector. Improved service quality and increased connectivity would attract more tourists to Vanuatu, boosting the industry’s growth, creating employment opportunities, and contributing to the country’s economy.
VRDB
Reviewing Internal Policies, Partnerships and Investing in Staff Development
In the case of VRDB, restructuring its ownership may not be the most appropriate solution for now, since it is a government-owned entity. However, the bank could benefit from reviewing its internal policies and procedures to identify any inefficiencies and areas for improvement.
For example, the bank could focus on streamlining its loan application and approval process, improving its credit risk management practices, and strengthening its loan recovery procedures.
This could help to reduce the bank’s non-performing loans, improve its financial stability, and enhance its overall performance.
The bank could also explore partnerships with other government agencies, development partners, and private sector entities to support its mission of providing financial services to rural communities.
This could involve collaborating with other government agencies to identify and address the development needs of rural communities, partnering with development organizations to access funding and technical assistance, and working with private sector entities to expand the bank’s reach and customer base.
Investing in staff training and development could also be a key strategy for the bank. This could include providing training on financial management, risk management, customer service, and other key areas, as well as investing in professional development opportunities to enhance the skills and knowledge of its employees.
This could help to improve the bank’s overall performance and increase its ability to serve the needs of rural communities.
The VRDB plays a crucial role in supporting the growth and development of Small and Medium Enterprises (SMEs), which represent a significant portion of the country’s businesses and a major source of employment. Providing SMEs with access to financial services can help stimulate economic growth for the country, and the strong performance of the bank would be especially beneficial for locals who want to do business. By accessing financial services more easily, SMEs can invest in their businesses and contribute to the overall economic growth of Vanuatu.
Excessive Political Interference Always Detrimental
Minimising political interference is also critical to ensuring that both Air Vanuatu and the VRDB are able to operate effectively and efficiently.
While it is important for the government to have a say in these institutions, excessive interference can lead to problems such as mismanagement and corruption.
Transparent guidelines for the appointment of key personnel, such as CEOs and board members, should prioritise merit-based selection processes to avoid political connections.
Clear lines of communication and accountability should be established between the institutions and the government, with regular reporting requirements to keep the government informed without excessive interference.
Additionally, an independent oversight mechanism should be established to investigate any instances of mismanagement or corruption. This will build public confidence and ensure effective operations while maintaining necessary government oversight.
Philan Kalmanu is an accomplished finance professional with extensive experience in credit analysis and corporate relationship management. He previously served as a Senior Credit Analyst for Bank South Pacific in Vanuatu before joining Bred Bank as the Corporate Relationship Manager. Currently, he is pursuing a Master of Economics in Finance and Accounting from the esteemed University of Aberdeen in Scotland.
