Vietnam Airlines JSC signed an agreement with Air Lease Corp. to reduce payments and other commitments that is expected to save the beleaguered carrier trying to stay afloat during the pandemic about $1 billion.

Los Angeles-based ALC will discount its rental rates for jets for the remaining term of its lease with Vietnam Airlines and has also reduced the company’s lease-payment obligations by canceling and delaying the delivery of new aircraft, according to a statement Wednesday.

In all, the new agreement will save Vietnam Airlines more than $1 billion, according to a posting on the government’s website. 

“They will save a lot of money,” Steven Udvar-Hazy, chairman and co-founder of ALC, said in an interview in Hanoi after the signing. “We worked out a scheme with the airline to improve their cash conservation, especially for the next two years, which is critical as they recover.” 

The arrangement comes as Vietnam’s national carrier undertakes a broader restructuring that involves efforts to sell aircraft and real estate assets, as well as issue bonds to raise fresh capital. The Southeast Asian airline may also look to offload equity stakes in other business units for funds.

Travel Restrictions

Covid-19 has pushed airlines worldwide to the brink with travel restrictions that have decimated passenger traffic. Fragile recoveries have been dashed by new and contagious virus variants that have triggered fresh border controls. Vietnam Airlines reported a 97% plunge in domestic air revenue in the third quarter.

Many airlines that lease their jets, betting ticket revenue will more than cover monthly repayments, have been forced to renegotiate better terms—or hand the planes back. Carriers across Southeast Asia, particularly those in tourist destinations like Vietnam, have been hit especially hard.

A debt restructuring is getting underway at flag carrier PT Garuda Indonesia, while Thai Airways International Pcl is also hobbling through the health crisis under a court-monitored debt rehabilitation plan. Philippine Airlines Inc. filed Chapter 11 bankruptcy in New York in September.

Across the Pacific, Chile-based Latam Airlines, Aeromexico and Colombia’s Avianca Holdings sought court protection in 2020. 

ALC has reached similar agreements with more than 60 airlines around the world, Udvar-Hazy said. In many cases, carriers agreed to lease more aircraft in the future. Vietnam Airlines will lease two more Boeing Co. 787 aircraft from ALC in the fourth quarter of 2022 and the fourth quarter of 2023 “as the international travel patterns recover,” he said.  

Shift To Leasing

The pandemic, he added, has created a shift away from plane purchases to aircraft leases as airlines grapple with more constrained balance sheets. In the past 12 months, 60% of all aircraft deliveries from Boeing and Airbus SE have been leased planes, the first time leased jets have represented more than 50% of deliveries, Udvar-Hazy said.

In Vietnam, carriers have struggled amid some of the world’s most strict anti-virus restrictions as the nation combats the spread of the delta variant. The government, which has banned most international flights since March 2020, plans to allow a trial resumption of some regular overseas flights in beginning Jan. 1.

The Vietnam Aviation Business Association is seeking an interest-free loan package valued at as much as 6 trillion dong ($261 million) for the nation’s domestic airlines, which have seen revenue drop as much as 90% during the pandemic, newspaper Tuoi Tre reported. The group is also proposing loans for carriers of as much as 30 trillion dong with preferential interest rates.

Vietnam Airlines received 4 trillion dong in low-cost loans from commercial banks that were refinanced at 0% interested by the central bank earlier this year.

ALC is Vietnam Airlines’ largest leasing partner, with 22 aircraft including 12 Airbus A321 Neo jets, four Boeing 787-10 planes and another six aircraft from the two planemakers that are yet to be delivered.