Air Niugini subsidiary Link PNG has launched a takeover bid for rival domestic carrier PNG Air – via a share acquisition from Nasfund. With the national airline undergoing significant restructuring, what are the prospects for a sustainable aviation sector in Papua New Guinea?

Detail of a PNG Air aircraft. Credit: PNG Air/Facebook

In a move that would create a virtual monopoly for domestic air travel in Papua New Guinea, state-owned Air Niugini subsidiary, Link PNG, has made a move to acquire 40 per cent of the shares in PNG Air from superannuation fund Nasfund and other smaller shareholdings, resulting in a controlling share of the rival airline.

Nasfund’s board has approved the sale of its shares in PNG Air to Link PNG, subject to Independent Consumer and Competition Commission (ICCC) and other required approvals. The ICCC has asked for submissions by 10 June from anyone who opposes the sale of the shares.

But the move seems to have taken PNG Air by surprise, with the company releasing a statement to the Papua New Guinea stock exchange (PNGX) that they found out about the move from the ICCC, not from its airline competition.

‘PNGX is also informed that there has been no formal approach by Air Niugini in this respect to PNG Air Limited,’ PNG Air’s statement said.

‘Link PNG and PNG Air have historically focused on providing services to regional towns across PNG where the larger jets are unable to operate.’

Before the current COVID-19 crisis struck, capping off a record-breaking year by posting a small profit of K500,000 in 2019 off the back of a K133 million turnaround. However, Minister for State Enterprises Sasindran Muthuvel noted last month that ‘its financial stability has deteriorated further because of the shutdown of all but essential flights for an extended period.’

PNG Air posted a K5.2 million ‘paper loss’ in 2019. Last month, the airline’s now-departed CEO Paul Abbot told Business Advantage PNG the airline was in a fight for its survival.

Out of the blue

As recently as last month, Nasfund was still advising its members to fly with PNG Air, due to the super fund’s shares in PNG Air. The airline also released a statement at the same time (6 May) calling itself the ‘people’s airline’.

‘Without the competitive environment of two airlines, there is little incentive for a monopoly to reduce airfares, or maintain quality of service. PNG Air provides that vital competitive focus for travellers in PNG,’ the release read.

But Link PNG argues that its acquisition of PNG Air would also benefit passengers.

‘This merger will make the airlines a sustainable business that doesn’t need to rely on Government support, meaning a saving of valuable taxpayer funds whilst also ensuring we can reduce airfares and invest in the newest and most suitable aircraft,’ said Link PNG General Manager Alex Kia in a statement.

He added that the proposal would ensure job security for all the PNG national staff across both airlines as well as encouraging local travel at a time when the tourism industry is suffering.

‘Link PNG and PNG Air have historically focused on providing services to regional towns across PNG where the larger jets are unable to operate,’ Kia said. ‘As part of this focus we will be able to expand the PNG Air brand out to even more domestic destinations, giving our customers more choice, more destinations, and more reason to travel around our beautiful country.’

Reforms

The possible acquisition comes as Air Niugini is undergoing a restructure, focused on what Minister for State Enterprises, Sasindran Muthuvel, described last month as ‘immediate cost savings, outsourcing of some services, re-fleeting options, an urgent injection of working capital, further financial support from international partners, and cooperation with other government agencies to reduce regulatory and debt payment pressures.’

He suggested that modernising Air Niugini’s fleet and changing to a more suitable mix of aircraft would deliver significant savings. (Notably, PNG Air’s fleet consists mostly of newer ATR 72-600 aircraft and some older Dash 8s, while Link PNG employs Dash 8 aircraft.)

Last week, the ICCC approved a codeshare agreement between Air Niugini and Cathay Pacific on the Port Moresby-to-Hong Kong route.

Sasindran Muthuvel said that the COVID-19 crisis meant that the entire domestic aviation sector was now under severe pressure, and that decisions on Air Niugini had to be made in an industry-wide context.

‘Our primary aim is to ensure a sustainable future for the national carrier and maintain essential aviation services, but we cannot ignore the potential impacts of our decisions on other parts of the industry,’ said Muthuvel.