State-owned Air Vanuatu (NF, Port Vila) has had its sole jet aircraft, a B737-800, repossessed by Air Lease Corporation after failing to pay outstanding lease debts of VUV541 million vatu (USD4.5 million), partly contributing to the Vanuatu government's decision earlier this month to appoint liqiudators and suspend operations. YJ-AV8 (msn 42052) ferried to Melbourne Tullamarine in January for its C-check, where it has remained since. Confirmation of the aircraft's repossession coincided with the liquidator releasing the first creditor's report.

The report, released on May 16, 2024, revealed the airline was USD73,505,247 in the red and was not in a position to finance operations. “The company is in significant financial distress,” the report reads. “The company’s poor financial position had meant aircraft were 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.”

“Prior to our appointment (on May 9, 2024), 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. The company’s financial position is dire, and it clearly cannot fund its own operations.”

Ernst & Young said its numbers were preliminary, partly because the available financial data was outdated, and final figures will likely differ. However, the liquidator’s initial estimate is that Air Vanuatu has secured creditors of USD10,656,165; non-financier loans of USD12,210,147; a pensions contribution liability of USD600,000; government loan debts of USD21,812,326; unsecured creditor debts of USD26,626,609; and unearned income liabilities of USD1.6 million. The headline debt figure excludes employee entitlements, which remain unknown.

Vanuatu's Prime Minister Charlot Salwai provided some details at a May 14 press conference in Port Vila. He said VUV640 million (USD5.3 million) of VUV2 billion (USD16.6 million) allocated to acquire a new aircraft had been used to clear lease debts for Air Vanuatu's ATR72-600 leased from Falko Regional Aircraft. Salwai also noted the airline owed a VUV28 million (USD232,650) fuel bill to Societe de Service Petroliers.

Air Vanuatu's fleet included the now-repossessed B737-800, the ATR72 registered as YJ-ACV3 (msn 42052), three DHC-6-300s registered as YJ-AV14 (msn 527), YJ-AV100 (msn 564), and YJ-RV10 (msn 679), respectively and one BN-2 registered as YJ-008. All but two of the smaller aircraft are grounded for maintenance/seizure reasons.

Aside from Air Vanuatu, Port Vila's Bauerfield International is serviced by Virgin Australia, Air New Zealand, Fiji Airways, Air Calédonie, and Air Niugini. In the wake of Air Vanuatu suspending its flights, Virgin Australia is increasing its flights from Brisbane, currently to five but aiming to go daily once it receives approval; Fiji Airways has increased capacity by swapping out its usual ATR for a B737; and Solomons - Solomon Airlines (IE, Honiara) has stepped in to operate a weekly Port Vila - Auckland roundtrip using an A320-200. Air Vanuatu plays a critical role in connecting the country to the bigger neighbouring nations of New Zealand and Australia. However, the airline has been riddled with financial problems and reliability issues in recent year

The Vanuatu government says it intends to reboot the airline, potentially with private sector backing. However, it has reduced funding to Air Vanuatu in recent years as it, like many other smaller Indo-Pacific governments, faces burgeoning loan repayments to China after accepting money for Belt and Road infrastructure projects.

While Ernst & Young have declined to say how long the liquidation process may take, early reports suggest Fiji Airways may be interested in acquiring the airline. Nauru Airline is also reportedly interested in some assets and its CEO was in Port Vila for meetings on the subject last week. However, Nauru Airlines did not respond to a request for comment on the matter.

The first Air Vanuatu creditors meeting is scheduled for May 22, 2024.