+-----------------------------------------------------------------------+
| # MARKET BRIEF - VIETNAM                                              |
|                                                                       |
| Vietnam: Aviation Sector                                              |
|                                                                       |
| #                                                                     |
+-----------------------------------------------------------------------+
| **By Le Son -- Commercial Specialist**                                |
|                                                                       |
| **As of May 28, 2007**                                                |
+-----------------------------------------------------------------------+

INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S.
DEPARTMENT OF STATE, 2007.

ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES.

The purpose of this report is two-fold: (i) to review recent
developments in the aviation sector including airport and ground support
equipment, aircraft and parts, and air traffic management equipment in
Vietnam, and (ii) to highlight the best prospects and sales
opportunities for U.S. companies so they can gain an overview of the
sector and formulate appropriate strategies for penetrating the
Vietnamese market. The information and figures in this report were
gathered from various official publications, press interviews, reports
and press releases from the Civil Aviation Administration of Vietnam
(CAAV), Vietnam Airlines Corporation (VNA), and its subsidiaries and
affiliates, other local and foreign businesses, as well as relevant
Vietnamese government agencies involved in the aviation sector.

## 

![](media/image2.png)

##### Vietnam is soon expected to take off as the fourth largest aviation market in Southeast Asia

(Photo: Airliners.net)

## 1. [Estimated Market Demand]{.underline}

+------------------------------------+---------+----------+-----------+
| > **Airport and Ground Support     | > *     | >        | >         |
| > Equipment**                      | *2005** | **2006** |  **2007** |
|                                    | >       | >        | >         |
|                                    | > **(Ac | > **(A   | > **(Est  |
|                                    | tual)** | ctual)** | imated)** |
+------------------------------------+---------+----------+-----------+
| > Total Market                     | > 7     | > 10     | > 20      |
+------------------------------------+---------+----------+-----------+
| > Local Production                 | > 0     | > 0      | > 0       |
+------------------------------------+---------+----------+-----------+
| > Total Exports                    | > 0     | > 0      | > 0       |
+------------------------------------+---------+----------+-----------+
| > Total Imports                    | > 7     | 10       | 20        |
+------------------------------------+---------+----------+-----------+
| > **Imports from the U.S.**        | > **3** | > **4**  | > **9**   |
+------------------------------------+---------+----------+-----------+

+------------------------------------+---------+----------+-----------+
| > **Air Traffic Management         | > *     | >        | >         |
| > Equipment**                      | *2005** | **2006** |  **2006** |
|                                    | >       | >        | >         |
|                                    | > **(Ac | > **(A   | > **(Est  |
|                                    | tual)** | ctual)** | imated)** |
+------------------------------------+---------+----------+-----------+
| > Total Market                     | > 14    | > 7      | > 12      |
+------------------------------------+---------+----------+-----------+
| > Local Production                 | > 0     | > 0      | > 0       |
+------------------------------------+---------+----------+-----------+
| > Total Exports                    | > 0     | > 0      | > 0       |
+------------------------------------+---------+----------+-----------+
| > Total Imports                    | > 18    | 7        | 12        |
+------------------------------------+---------+----------+-----------+
| > **Imports from the U.S.**        | > **5** | > **3**  | > **5**   |
+------------------------------------+---------+----------+-----------+

+------------------------------------+---------+----------+-----------+
| > **Engines, Engine Parts and      | > *     | >        | >         |
| > Aircraft Parts**                 | *2005** | **2006** |  **2007** |
|                                    | >       | >        | >         |
|                                    | > **(Ac | > **(A   | > **(Est  |
|                                    | tual)** | ctual)** | imated)** |
+------------------------------------+---------+----------+-----------+
| > Total Market                     | > 100   | > 120    | > 110     |
+------------------------------------+---------+----------+-----------+
| > Local Production                 | > 0     | > 0      | > 0       |
+------------------------------------+---------+----------+-----------+
| > Total Exports                    | > 0     | > 0      | > 0       |
+------------------------------------+---------+----------+-----------+
| > Total Imports                    | > 100   | 120      | 110       |
+------------------------------------+---------+----------+-----------+
| > **Imports from the U.S.**        | >       | > **77** | > **30**  |
|                                    |  **60** |          |           |
+------------------------------------+---------+----------+-----------+

Remark:

The above statistics are in USD millions excluding aircraft and are
based on U.S. Census Bureau's records and unofficial estimates by the
author.

**2. [Market Data]{.underline}**

**2.1 [Industry Organization]{.underline}**

Aviation is one of the top priority sectors for development by the
Vietnamese government since it is viewed as a prerequisite to rapid
national economic growth. The aviation industry in Vietnam comes under
the principal jurisdiction and management of the Civil Aviation
Administration of Vietnam (CAAV), a government agency reporting to the
Ministry of Transport.

2.2 [Demand and Supply for Air Transport]{.underline}

According to the CAAV, the total air passenger traffic carried during
2001 -- 2005 reached 25.3 million with an average growth of 13.1% per
year while the total volume of airport through-put of passengers was
53.5 million and achieved an average growth of 12.4% per year. In terms
of airport through-put of cargo, the total volume over this period was
1.15 million tons and grew 19.4% per year on the average. With regard to
air traffic management, Vietnam Air Traffic Management (VATM), a
subsidiary of CAAV, provided services to 1,036 million flight times with
a total range of 1.2 billion km which represent an average growth of
8.8% and 12% annually. The total revenue of the Vietnamese aviation
sector over 2001-2005 was estimated at USD 5.4 billion, an average
growth of 16.3% per year.

![](media/image3.wmf)

**Airport Through-put Passengers in Vietnam in the period 2002-2007\***

Source: VNA and CAAV Press Releases (\* 2007 Forecast)

![](media/image4.wmf)In 2006, total airport through-put of passengers
reached 16 million, a 14.28% increase compared with 2005, and this
figure is expected to rise to over 20 million by 2010. VNA carried 6.8
million passengers (3.1 million international and 3.7 million domestic)
including 58,000 passengers transported by VASCO, a 12.76% year-on-year
rise. VNA's total carried passengers are expected to reach 11 million by
2015. The total through-put of air cargo is estimated to grow 14 percent
each year, reaching approximately 576,000 tons in 2010.

VNA's Passenger Traffic in Period 2002 -- 2007\* (Forecast)

(Source: VNA Press Releases)

![](media/image5.png){width="5.863194444444445in" height="8.875in"}

##### Map 1 - Vietnam's Airport Network

Source: Saigon Times Weekly- 2005

As of 2006, VNA accounted for about 42% share of international passenger
traffic and 86% of domestic passengers while Pacific Airlines shares
about 30% of passenger carried on its main route between Ho Chi Minh
City and Hanoi and makes up approximately 14% of the total domestic air
travel market.

![](media/image6.wmf){width="5.0in" height="2.7444444444444445in"}In May
2007, there are 35 foreign airlines with frequent flights to and from
Vietnam. The country currently operates a network of 21 major civil
airports (see Map 1) including three international: the Noi Bai Airport
in the north (Hanoi), Danang in the center and Tan Son Nhat in the south
(Ho Chi Minh City). The Tan Son Nhat airport, with a capacity of 7
million passengers per year, is the largest airport in the country,
handling about 70% of the country\'s international passenger traffic. In
terms of total airport passenger through-put, in 2006, southern
airports, under the Southern Airports Authority (SAA), handled about 54%
(8.8 million) of the national total, middle airports (under the Middle
Airports Authority - MAA) about 13% (2.12 million), and northern
airports (under the Northern Airports Authority - NAA) about 33% (5.38
million).

##### Chart 1 -- Composition of Airport Throughput Passengers by Region

Source: GTVT News -- Jan. 1, 07

2.3. [Major Airlines in Vietnam]{.underline}

At present, Vietnam Airlines (VNA) and Pacific Airlines (PA) are the two
major air carriers in Vietnam.

-   [Vietnam Airlines (VNA) and VASCO]{.underline}

VNA, the national flag carrier of
[Vietnam](http://en.wikipedia.org/wiki/Vietnam), was established as a
state enterprise in April 1989.

Vietnam Airlines Corporation was subsequently formed in 1995, after
bringing together several service companies. The company is overseen by
a seven-seat management board, members of which are directly appointed
by the Prime Minister.

As of March 2007, VNA and VASCO, a subsidiary of VNA operating short
haul domestic flights, are operating a fleet of 45 airplanes excluding
11 in orders as shown in the following table. The average age of the
Vietnam Airlines fleet is 6.3 years as at January 2007.

The airline has ordered 4 [Boeing
787-8](http://en.wikipedia.org/wiki/Boeing_787) aircraft to be delivered
from 2009 and 10 [Airbus
A321-200](http://en.wikipedia.org/wiki/Airbus_A321-200) for deliveries
starting from 2006. It plans to use them to expand the route network and
replace some of the aircraft currently on lease in the fleet. VNA is
also expected to lease three additional Airbus A330s to cope with the
growing passenger traffic.

Vietnam Airlines Fleet as of March 2007

(Source: VNA -- 2007)

  ----------------------------------------------------------- ----------- --------------- ---------------------- -----------
  **Type**                                                    **Total**   **Passengers\   **Routes**             **Notes**
                                                                          (Business or                           
                                                                          Economy)**                             

  [ATR 72-200](http://en.wikipedia.org/wiki/ATR_72)           6           65 (0/65)       Domestic routes        

  [ATR 72-500](http://en.wikipedia.org/wiki/ATR_72-500)       4           65 (0/65)       Domestic routes and    
                                                                                          Cambodia, Laos         

  [Airbus A320-200](http://en.wikipedia.org/wiki/Airbus_A320) 10          162 (0/162)     Domestic and Regional  
                                                                                          routes\                
                                                                                          Vietnam and China      

  [Airbus                                                     10\         184 (16/168)    Domestic and Regional  For
  A321-200](http://en.wikipedia.org/wiki/Airbus_A321-200)     (7 orders)                  routes                 delivery
                                                                                                                 between\
                                                                                                                 2007 and
                                                                                                                 2009

  [Airbus                                                     1\          320 (36/284)\   Regional and Long haul 
  A330-300](http://en.wikipedia.org/wiki/Airbus_A330-300)     2           266 (24/242)    routes\                
                                                                                          China / Hong Kong /    
                                                                                          Japan / South Korea /  
                                                                                          Malaysia\              
                                                                                          Singapore / Thailand   
                                                                                          and Poland             

  [Boeing                                                     4\          307 (25/282)\   Domestic and Long haul 
  777-200ER](http://en.wikipedia.org/wiki/Boeing_777-200ER)   4\          338 (32/306)\   routes\                
                                                              1\          325 (35/290)\   Ha Noi, Da Nang and\   
                                                              1           295 (12/283)    Frankfurt / Moscow /   
                                                                                          Paris\                 
                                                                                          Melbourne / Sydney     

  [Boeing                                                     0\                                                 For
  787-800](http://en.wikipedia.org/wiki/Boeing_787-800)       (4 orders)                                         delivery in
                                                                                                                 2009

  [Fokker 70](http://en.wikipedia.org/wiki/Fokker_70)         2           79 (0/79)       Domestic routes        

  **Total Number of Aircraft**                                45\                                                
                                                              (11 orders)                                        
  ----------------------------------------------------------- ----------- --------------- ---------------------- -----------

-   **[Pacific Airlines (PA)]{.underline}**

Pacific Airlines, the second largest air carrier in Vietnam, was
established in 1991 and started operations in 1992 with VNA as the major
shareholder (86.49%). It is the first joint stock airline formed in
Vietnam following changes in the law to allow foreign investment in the
country\'s airlines. In 2005, it narrowly escaped closure due to
inability to pay its debts and continuous non-profitable operations. By
a decision of the Prime Minister of Vietnam, all of VNA\'s shares in the
company were then transferred to the Ministry of Finance (MoF) and
thereafter to the State Capital Investment Corporation (SCIC), a state
owned company under MoF, for business and ownership restructuring.

In February, PA has officially become the first budget air carrier in
Vietnam. PA is the only Vietnamese ticketless airline offering 100%
e-ticketing and online credit card payment via its website, as well as
24/7 telephone reservation services to customers.

On April 26, [2007](http://en.wikipedia.org/wiki/2007), Australian
airline [Qantas](http://en.wikipedia.org/wiki/Qantas) acquired a 30%
stake in PA for USD 50 million and became PA's strategic parnter. After
this restructuring, SCIC still holds a 62% stake, Qantas 30%, Saigon
Tourist Holding Corporation 7.53% and the remainder held by Tradevico (a
company under Ministry of Transport).

PA's fleet includes three leased Boeing 737-400s and one Airbus
A320-200s (as of May 2007). In 2005.

#### Other Foreign Airlines 

In addition, there are as many as 35 airlines operating frequent
international flights to Vietnam as of May 2007. Industry experts expect
that about another 30 air carriers will enter the Vietnam market over
the next ten years.

**2.4 [Aircraft Maintenance Centers of VNA]{.underline}**

VNA owns and operates two major commercial maintenance centers, namely
A75 in HCMC and A76 in Hanoi, which independently perform both daily and
periodical checks and maintenance according to JAR/VAR-145 standards.
A75 mainly focuses on Boeing aircraft while the center in Hanoi
concentrates on Airbus airliners. At present, A75 and A76 can carry out
maintenance services at the following levels: Dcheck (F70 and ATR72),
A320 (8C-10Ycheck), B767 (Acheck), and B777 (2Ccheck).

To improve the efficiency of the A75 and A76 centers and allow them to
operate in an independent business unit after a merger, on September 28,
2006, Deputy Prime Minister Nguyen Sinh Hung issued Decision 1276/QD-TTg
to establish Vietnam Airlines Engineering Company Ltd. (VAECO Ltd.) with
a chartered capital of about USD 26 million based on the merger of A75,
A76 and other technical departments of VNA.

In addition, VNA also seeks to establish a joint venture with a foreign
company to provide aircraft maintenance, repair, and overhaul services
to VNA's fleet and other international carriers. In May 2006, VNA signed
a memorandum of understanding with the Philippines-based Milcon Gulf
Group concerning a possible joint venture in the near future.

Due to its current limited maintenance and overhaul capabilities, VNA
still has to send its aircraft for maintenance and overhaul by Air
France, AMECO of China, China Airlines, Evergreen Aviation Technologies,
GAMECO, Hong Kong Aircraft Engineering Co, Lufthansa AERO, MTU
Maintenance Hanover, Royal Brunei Airlines, Safe Air of New Zealand, or
TAT Industries of France. VNA also receives technical and maintenance
assistance from Region Air of Singapore and Park Aviation of Ireland.

**2.5 [Pilot Training]{.underline}**

According to the Director General of the Association of Asia Pacific
Airlines, a trade association of Asian-based airlines, Vietnam's
aviation industry lacks experience in the realm of pilot and crew
training. VNA, however, is effecting continual improvements in this
field.

Transportation of dangerous goods, cabin crew training, crew resource
management (CRM) and pilot training are all safety-enhancing programs
taught to airline personnel. New Vietnamese pilots are assigned as
Western-type aircraft co-pilots. All pilots, both national and foreign,
receive biannual simulator training and periodic line checks by Western
pilots. A Hanoi-based Airbus cabin mock-up is specifically used for
smoke and evacuation training.

Most ATR captains and co-pilots are Vietnamese. Currently, Airbus
captains and co-pilots are approximately one-third foreign and
two-thirds Vietnamese citizens. All Fokker flight crews are Vietnamese,
but instructors and check pilots are expatriates. Most Boeing flight
crews are Vietnamese, and about 1/3 are foreign.

Only 40 percent of VNA's aircraft are captained by Vietnamese citizens,
all of whom are required to attend training programs abroad. It is
estimated that about 50 VNA pilots are trained overseas annually mainly
in Australia, France and Germany. On October 30, 2006, the Minster of
Transport issued Decision 2321/QD-BGTVT to establish the Vietnamese
Aviation Academy (VAA) based on the previously existing Aviation School.
One of VAA's priorities in the future is to devise a professional pilot
training program to serve domestic airlines.

**2.6 [Air Traffic Management]{.underline}**

Vietnam's flight information region (FIR) is divided into two areas,
namely Hanoi and HCMC. At present, VATM covers FIR Hanoi and HCMC with
two area control centers (located in Hanoi and HCMC), three approach
control centers (in Hanoi, Danang and HCMC), 17 airport air traffic
control towers, six radar stations, 16 satellite stations, 40 beacons,
20 VHF stations, and tens of digital microwave links. In 2004,VATM
provided air traffic management services to nearly 100 airlines
operating on 23 international routes and 15 domestic routes.

**2.6. [Market Liberalization]{.underline}**

The Vietnamese government is opening its aviation sector to foreign
carriers. The liberalization process, however, will proceed gradually in
several steps, given the perceived weakness of the domestic air
transport industry. The government will phase in each step in accordance
with its regional and international trade commitments and obligations,
i.e., CLMV (Cambodia, Laos, Burma, Vietnam) -- ASEAN -- APEC -- WTO.

As of the beginning of 2006, Vietnam had signed bilateral aviation
agreements with 58 nations and territories. In 2004, a milestone in the
aviation sector was achieved with the signing of the U.S -- Vietnam
Aviation Agreement, which led the way for direct passenger and cargo
flights between the two countries. For the time being, two American air
carriers, United Airlines (with stop in Hong Kong) and American Airlines
(code-share with VNA), operate direct flights to HCMC. After many
postponements, VNA is expected to open direct flights to the U.S. within
2008.

**2.7 [Revised Aviation Law and New Decree on Air Transport Business
Activities]{.underline}**

On June 29 2006, the National Assembly passed the revised Aviation Law
that regulates civil aviation activities including civil aircraft,
airports, airlines and other aviation businesses, air traffic
management, air transport services, security, civil liabilities, state
management of aviation activities, and other matters related to the
aviation sector.

This law provides that domestic air transport be handled only by local
companies and joint ventures between local and foreign partners. A
Decree on Air Transport Business Activities (Decree 76/2007/NĐ-CP),
which was drafted by CAAV to provides details of the implementation of
new Aviation Law, was approved by the Vietnamese Prime Minister on May
9, 2007.

One of the most important articles in this decree is the
pre-qualifications for establishing airlines in Vietnam including (1)
access to aircraft (number and types of airplanes, ownership); (2)
qualified workforce capable of conducting flight operations,
maintenance, and air transport; (3) minimum legal capital with a cap on
foreign ownership in chartered capital; (4) business proposals and
strategies; and (5) premises located in Vietnam.

Under this decree, the private sector, including foreign companies (in
joint ventures with Vietnamese partners), has been permitted for the
first time to participate in domestic air transport by setting up new
domestic and international airlines in Vietnam.

## 3. [Opportunities and Best Prospects]{.underline}

3.1 Airport Development:

According to Vietnam\'s long-term development plan, by the year 2025,
Vietnam's aviation sector will need about USD 11.56 billion in
investment to meet surging demands for air transport. Of this, around
USD 6 billion will be spent on infrastructure. At present, the
government budget can only meet about 20% of the total investment
required for the aviation sector. Raising sufficient funds for this
development is an immense challenge for Vietnam now and in the future.

In the period 2005 -- 2010, Vietnam plans to invest more than USD \$1.3
billion in airport modernization, expansion and rehabilitation in order
to accomplish an efficient network of 21 airports in operation including
projects such as Noi Bai (second terminal), Na San, Dong Hoi, Cam Ranh,
Chu Lai, Lien Khuong, Con Dao, Phu Quoc (International), Can Tho, Ca
Mau, and Rach Gia. During period of 2010 -- 2020, several other airports
will be constructed or upgraded including Long Thanh (International),
Chu Lai (Cargo), Cat Bi (Hai Phong), Quang Ninh (International), Lao
Cai, and Cao Bang. A lion's share of the investment in airport projects
is expected to come from Official Development Assistance (ODA) loans
from foreign governments such as Japan as well as the private sector.

Following are three key international projects that are expected to be
developed with investment from the Vietnamese government as well as the
private sector. To develop these projects, the Vietnamese Ministry of
Planning and Investment (MPI) has completed a proposal to the Prime
Minister to seek foreign direct investment. If approved, foreign
investors will be allowed to develop these projects under the form of
Build-Operate-Transfer (BOT), BT (Build-Transfer), or Build-Operate-Own
(BOO).

-   **[Long Thanh International Airport]{.underline}:**

> CAAV and SAA forecasts that Tan Son Nhat International Airport, the
> only airport in the southern region serving international flights,
> will reach maximum capacity of 15 - 17 million passengers per year by
> 2012 in spite of a new terminal now under construction. Therefore,
> these agencies are taking steps to reduce strain on existing
> facilities and increase the country's overall international passenger
> capacity by proposing the construction of the new Long Thanh
> International Airport. This project is also being developed in a bid
> to compete with Bangkok and Singapore as a regional transit hub in
> Southeast Asia. The Long Thanh International Airport project will be
> built on 5,000 hectares in Long Thanh District, Dong Nai Province,
> about 40 km southeast of Ho Chi Minh City and 48 km from Vung Tau
> City.
>
> On July 20, 2005, the Prime Minister of Vietnam issued Decision
> 703/2005/QD-TTG to give final approval of the location and scope of
> the project. This decision officially allows CAAV to conduct a
> masterplan and a feasibility study (F/S) for the project.
>
> In December 2006, the Southern Airports Authorities (SAA) and the
> People Committee of Dong Nai Province completed the specific land
> planning for the site for the airport project and announced the
> location plan to the public. In February 2007, SAA organized an open
> international tender for the masterplan of the project. This move
> proves the government is determined to undertake this mega airport
> project which will be carried out in two phases:
>
> **[Phase 1 (2010 -- 2015)]{.underline}:** According to the project's
> pre F/S, in the first phase the first terminal capable of handling 20
> million passengers per year together with one runway (4,000 x 60 m)
> will be constructed according to 4F ICAO standards and are expected to
> be operational some time during the period 2010-2015. The planned
> runways will be able handle super jets such as A380s and B747s. The
> total investment in the first phase is estimated at US\$ 3 billion.
>
> **[Phase 2 (After 2015)]{.underline}:** During the second phase,
> depending on the growth of the market, the airport may be expanded to
> handle up to 100 million passengers and 5 million tons of cargo per
> year with three additional runways. The investment in this phase is
> about US\$ 5 billion.
>
> Once completed, the Long Thanh Airport is expected to replace the Tan
> Son Nhat Airport (TSN) as an international hub for not only Vietnam
> but also the region. TSN then will primarily serve as a domestic
> airport.

-   **[Phu Quoc International Airport]{.underline}**

> At present, the existing airport, with one 2,100m x 30m runway, is
> only able to handle small airplanes such as ATR 72s and Fokker 70s. In
> 2006, the total passenger throughput at the airport was 214,000, a 25%
> year-on-year increase. This small airport has now become a bottleneck
> to the island's economic and tourist development. A number of foreign
> investors have express strong interest in developing several major
> tourist and entertainment projects on the island but cannot move
> forward due to a lack of an international airport large enough to
> handle jet airliners.
>
> According to an economic and social development masterplan and a
> tourism development masterplan by 2020 for Phu Quoc Island approved by
> the government in October 2004 and January 2007 respectively (Decision
> 178/2004/QĐ-TTg and 01/2007/QĐ-TTg), the island will be developed into
> a major international tourist attraction. This plan envisions the
> total number of visitors to Phu Quoc Island will reach about 1-1.2
> million by 2015 and 2-3 million by 2020. As part of this plan, the
> Southern Airports Authorities (SAA) is planning a new international
> airport located in an area of 800ha in Duong To District. Upon
> completion, this new airport with a capacity of 2.5 million passengers
> per year will have a runway of over 3,000 meters, a parking bay able
> to accommodate 20 airliners, a modern terminal and a control and
> operation center. The total investment in this project is estimated at
> USD \$170 million, and the funding sources may come from both SAA and
> foreign developers. SAA is currently in negotiations with a foreign
> consultant to complete a masterplan for the airport project.

-   **[Quang Ninh International Airport]{.underline}**

> On May, 31, 2006, the Vietnamese Prime Minister issued Decision
> 786/QĐ-TTg to approve the "Economic and Social Development Masterplan
> for the Van Don Economic Zone" in Quang Ninh Province, located in the
> northeast of Vietnam and sharing a common border with China (see Map
> 2). The Van Don Economic Zone covers the whole Van Don Island District
> including one township and 11 wards. The masterplan set the following
> development goals for the zone: (1) A luxury eco-tourism center
> associated with sea and islands; (2) An international airport hub; and
> (3) A high quality service center and an international trade gateway
> for the region.
>
> One of the critical components of the masterplan is the Quang Ninh
> International Airport to be located in the Van Don Economic Zone. This
> greenfield airport project is expected to boost the economic and
> tourism development of the province which presently has no airport.
> According to the approved masterplan, the new airport will have a
> capacity of 3.5 - 6 million passengers per year with two 3.5 km
> runways. The project is estimated to cost USD 200 million and will be
> developed in the following phases: (1) 2007 -- 2010: planning and
> starting up construction; (2) 2011 -- 2015: completion of phase I; and
> (3) 2016 -- 2016: completion of entire project.
>
> As the next step to carry out this airport project, the government has
> given the green light to Royal (Hoang Gia) International Joint Stock
> Corporation to conduct a feasibility study. This is the first airport
> project in Vietnam that has been given to private developer in the
> form of Build and Transfer (BT) in exchange for 1,500 hectares of land
> for theme park, golf and resort projects in Van Don Island District.
> Upon completion, the airport will be handed over to the Vietnamese
> government. It is unclear who will operate and manage the airport
> after the transfer.
>
> Royal Corporation was established in 1992 as Royal JV Company, a joint
> venture between Sociedade de Turismo e Diversoes de Macau (STDM) and
> Ha Long Tourism Co., Ltd. STDM is owned by Stanley Ho and his family
> and is currently holding 31% interest in the Macau International
> Airport.

**3.2 Air Traffic Management**

In addition, Air Traffic Management (VATM) will spend over USD \$67
million on its 46 new and ongoing air traffic management projects.
Funding for these projects comes mainly from VATM's own budget
accumulated from its business activities.

-   **AACC/HCM Project:** To meet growing air traffic in the southern
    region, VATM has decided to build an Area Approach Control Center
    (AACC) on 6.5 hectares with a total estimated investment of US\$ 26
    million. The project consists of a 4-story, 4,500-sqm AACC building,
    a 3-story, 4,000-sqm operations building and automatic ATM systems
    worth about US\$ 10-12 million including the Automatic ATC
    Management System (AAMS), and an Aeronautical Telecommunication
    Network (ATN). The basic construction of this project is under way
    and is expected to be operational in early 2006. With regard to the
    supply of equipment, six foreign contractors including Thales,
    Alenia Marconi, Raytheon, ARINC, Intelcan Technosystems, and
    Lockheed Martin participated in the ATM system bidding in 2003. In
    October, 2003, Thales was awarded the contract for equipment by
    VATM. Upon completion in 2006, the AACC/HCM is capable of handling
    the increasing volume of air traffic control services for both
    domestic and international flights up to 2010. This system is also
    ready for the expansion of radar stations and integration into
    regional operation of ground-to-ground and air-to ground data
    transmitting.

 

-   **ACC/Hanoi Project**: This project is planned for construction in
    the Gia Lam Aviation Compound in Hanoi, including two office
    buildings of which one is dedicated to the ATM operation and the
    other for administration of NORATS. Technical systems for this
    project will be similar to those of AACC/HCM. ACC/Hanoi will require
    about US\$ 27 million in investment and is currently in the design
    and planning phase. Construction is expected to commence after the
    completion of the AACC/HMC project.

 

-   **Domestic Airport Air Traffic Management (ATM) Towers**: ATC towers
    in a number of domestic international airports will need to be
    upgraded to keep pace with the development and expansion of those
    airports including Dien Bien Phu, Vinh, Phu Bai, Phu Cat, Dong Hoi,
    Chu Lai, Pleiku, Can Tho, Phu Quoc, Con Dao, Buon Ma Thuot and some
    other airports.

-   **Noi Bai and Tan Son Nhat Air Traffic Management (ATM) Tower**:
    These projects will include an 80-meter tall ATC tower located at
    the Noi Bai and Tan Son Nhat International Airports. The towers will
    be equipped with state-of-the-art CNS/ATM systems as recommended by
    ICAO. To enhance the safety and security, firefighting, access
    control, and surveillance systems will also be installed in these
    towers. These projects, presently in the design and planning phase,
    are estimated to cost over US\$ 30 million. Construction is
    scheduled to coincide with the ACC Hanoi project.

-   **VATM Headquarters Building**: This project will be located in the
    Gia Lam Aviation Compound, serving as the headquarters for the
    entire ATM sector in Vietnam. The building will be supplied with
    modern equipment capable of monitoring the ATM systems throughout
    the country. This project, estimated to require US\$ 3.5 million, is
    expected to be operational by 2010.

-   **Other projects:** In addition to the above major projects, VATM is
    also planning to carry out a number of other projects located
    throughout the country, including upgrade of the national ATN system
    linking with other countries, application of CNS/ATM programs (about
    US\$ 34 million in investment), data transmitting via G-G and A-G
    with microwave links, installation of the automatic flight
    information systems, construction of several new DVOR/DME stations
    (Con Dao, Cam Ranh, Dong Hoi, Dien Bien, Tan Son Nhat and Noi Bai),
    installation of DGTS systems in one or two airports as a pilot
    project, installation of new ADS, and establishment of a new company
    with ATTECH, within the framework of one of its subsidiaries,
    specializing in providing technical services in the ATM sector.

**3.3 Air Fleet Development:**

Over the period 2006 -- 2010, VNA plans to invest more than USD \$1.2
billion in expanding and upgrading its aircraft fleet as well as other
related facilities. Funding for aircraft fleet expansion mainly comes
from the VNA and government budget, bond sales, as well as foreign
commercial loans with sovereign guarantees. Under its current
acquisition plan, VNA has purchased four B787-8 Dreamliners for delivery
in 2009 and 2010 and ten A321s for delivery in 2007 -- 2009, and has
also leased three A330s for long-haul flights. According to VNA's fleet
expansion plan, VNA's fleet is expected to operate 60 aircraft by 2010
and 80 by 2015.

In July 2006, as part of VNA's expansion plan, the Prime Minister
approved VNA's purchase of 19 more airplanes comprising five short-haul
aircraft (ATR72s or equivalent) for domestic air routes and 14 long-haul
ones (B787s or A350s) for pan-Pacific service (U.S. -- Vietnam direct
flights).

With regard to PA, fleet expansion plans remain unclear after the
restructuring of the company.

The aircraft maintenance service and parts segments are expected to grow
sharply over the next five years. One of VNA's strategies is to upgrade
the existing facilities and human resources at the A75 and A76 centers
in order to be able to maintain and overhaul up to 80% of mechanical and
60% of electronic parts for VNA's fleet and other airlines. In addition,
these maintenance centers will be further modernized to handle engine
repair for a majority of VNA's aircraft, and will seek to overhaul
engines after 2010.

## 3.4 [Best Products and Services]{.underline}

American companies are highly respected in Vietnam as the world's
leading equipment manufacturers and service providers in the aviation
sector in terms of advanced technologies, quality, and professionalism.
In the above projects in Vietnam, American companies will find
significant opportunities for providing architectural, engineering and
construction services, and construction management services for airports
and terminals. In addition, over the last few years American firms have
sold a considerable amount of airport ground support equipment (GSE),
equipment for passenger terminals, air traffic management systems,
telecommunication systems, software, aircraft parts, training services,
as well as the transfer of aircraft maintenance and engine overhaul
services.

#### 4. Prospective Buyers and Market Challenges

**4.1 [Buyers and End-Users]{.underline}**

In the aviation sector, the principal point of contact for discussions
on key aviation projects is CAAV and VNA. The buyers and end-users of
equipment and services, as well as project sponsors, however, are CAAV's
subsidiaries such as NAA, MAA, SAA, Noi Bai International Airport
Aground Services (NIGAS), Tan Son Nhat International Airport Ground
Services (TIAGS), Vietnam Air Traffic Management (VATM) and its
subsidiaries (NORATS, MORATS and SORATS), VNA's departments and its
subsidiaries. To be successful, American companies need to establish
relationships with various levels in the sector and are recommended to
work with local agents or representatives.

**4.2 [Challenges Facing American Companies]{.underline}**

In general, American companies are facing the following major
challenges:

-   Most procurement in key airport projects in Vietnam is funded by ODA
    loans which tie the purchases to the goods and services from donor's
    countries. Under many circumstances, Vietnamese buyers prefer
    American made equipment but have no choice because "tied bidding" is
    a prerequisite of ODA loans and they do not have access to other
    funding sources.

-   Corruption is another obstacle American companies frequently
    encounter in supplying projects in the aviation sector in Vietnam.
    Over the last few years, the Vietnamese government has shown
    determination to take strong actions against these bad practices at
    all levels but the problem is not expected to go away anytime soon.
    U.S. companies are subject to the Foreign Corrupt Practices Act when
    pursuing business opportunities in Vietnam.

-   Lengthy and complicated local procurement practices under the
    Vietnamese Tender Law and regulations are another hurdle American
    companies are expected to meet even for small purchases. These
    practices always take suppliers more time and efforts to make their
    sales and American firms are recommended to be patient and flexible
    to succeed.

## 5. [Market Entry and Resources]{.underline} 

To enter the market, U.S. equipment suppliers and service providers are
well advised to register their interest and capabilities with the
appropriate agencies, particularly CAAV, VNA and its subsidiaries. The
Commercial Service offices in Hanoi and HCMC should be contacted for
assistance in the registration process and the selection of reputable
local firms for collaborative arrangements, which is one of the
prerequisites for success in the market. As a result, interested U.S.
firms are urged to consider establishing various forms of strategic
alliances with local companies in pursuing their projects in Vietnam. So
far, no trade event in the aviation sector has been organized in
Vietnam. Most VNA and PA's officials attend the Asian Aerospace Show or
the Paris Air Show to meet with potential suppliers and partners.

For more information about the Vietnamese aviation industry, please
contact:

## 

## Le Son

Commercial Specialist

E-mail: <Le.Son@mail.doc.gov>

U.S. Commercial Service, U.S. Consulate General

9^th^ Floor, Saigon Center

65 Le Loi Boulevard, District 1

Ho Chi Minh City, Vietnam

Phone: (848) 825-0490 (Ext. 33), Fax: (848) 825-0491

Website: [www.buyusa.gov/vietnam](http://www.buyusa.gov/vietnam)

####### 

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