Hanoi wants Jetstar out of Vietnam, and the ‘country arrest’ of its two Australian executives is nothing more than crude bargaining.

The ‘get rid of Jetstar’ agenda of the communist regime first flared into public view in October. Like the latest development, concerning fuel hedging losses, the object is to end the $US 50 million 27% Qantas stake in Vietnamese domestic carrier Jetstar Pacific.

Back in November we broke the news, as far as Australia goes, that the carrier had been given until this coming October to remove its identity, and especially its logo, from the small clapped out fleet of 737-400s that operate most of its services.

This reflected an ideological split in the Communist regime concerning national identities and the spread of trans border franchises, like Coca-Cola, and its aviation imitation, the Jetstar low cost carrier franchise.

(November 11, 2009) News reports from Asia tell a story of tensions arising over national economic policy between the Communist Party in Vietnam and its Communist Government.

According to those reports, there is a conflict of ideology occurring between those who believe state enterprises should be seen to be uniquely Vietnamese rather than subsumed by trans border or multinational branding, and those who argue for leveraging global branding to grow the national economy.

That dispute apparently remained unresolved until December 24 when its two Australian senior executives were blocked from flying home for Christmas.

The commentary from Qantas CEO Alan Joyce that fuel hedging losses were commonplace during the financial crisis is true, but beside the point. It would be implausible to hold the view that Hanoi doesn’t know all about fuel hedging and its risks, and about trans border franchises.

The real agenda is to end the Jetstar involvement in Vietnames air transport, something presumably supported by the country’s national carrier Vietnamese Airlines.

The fuel losses followed two related crises, soaring jet fuel prices in 2008, following by a global financial crisis that deflated fuel, but also collapsed several hedge funds.

Cathay Pacific for example lost close to $300 million from such a combination, in Lehman Bros, which took the money, and then it is claimed failed to deliver the fuel as per contracts, after it filed the largest petition for bankruptcy in US history in September 2008.

It isn’t clear exactly what form the Jetstar Pacific calamity, which is said to lost over $US 30 million on its hedges, actually took. But it sounds just as Joyce describes it; a typical airline experience with fuel hedges in the previous year.

An aged Vietnam Pacific 737-400
An aged Vietnam Pacific 737-400

The more interesting question is whether there is anything to salvage for Qantas. If the ideological environment in Vietnam is this implacable , will it negotiate an exit price which recovers as much of its investment as possible? The only logical explanation for these events is that they are part of such a process.

The alliance announced with Asia’s largest and most successful low cost carrier franchise Air Asia this week has potential benefits that make Vietnam seem like a minor misadventure on the way to bigger things.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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