TOKYO -- All Nippon Airways plans to invest in Vietnam Airlines to better tap Asia's rapidly expanding aviation market. But the deal, struck outside the bounds of the industry's power structure, has raised eyebrows.
ANA Holdings on Tuesday said it has signed a memorandum of understanding with the Vietnamese carrier, agreeing to work toward establishing capital and business ties. The Japanese airline is to obtain an 8.8% stake in Vietnam Airlines, possibly by the middle of this year, by purchasing about 13 billion yen ($109 million) worth of new shares. The companies intend to launch code-share flights between Japan and Vietnam in October at the earliest.
"I strongly believe this comprehensive cooperation will enhance the value, brand and image of Vietnam Airlines," Pham Viet Thanh, the company's chairman, said in a joint statement the carriers released on Tuesday.
The Vietnamese flag carrier commands a significant market share: It flies about 50% of the passengers who jet between the Southeast Asian country and Japan. But customer satisfaction is not its strong suit. Not a few passengers complain about the poor service typical of state-owned corporations.
The Vietnamese government, which owns 95% of the airline, has been looking for a strategic partner that can help to improve hospitality and management efficiency.
For ANA, the deal has been several years in the making. Some sources say Vietnam Airlines is a fickle negotiator, but ANA kept working to put the pact together, with the help of the Development Bank of Japan and other parties.
The arrangement will enable ANA to push back against Japan Airlines. Vietnam Airlines has been running code-share flights with JAL under an existing tie-up. Once ANA buys the shares, Vietnam Airlines is expected to terminate that tie-up.
Waiting on the runway
Yet the deal is not quite done. ANA and Vietnam Airlines need to iron out the details of code sharing, mileage programs and other matters before they can sign a final agreement.
The biggest hurdle may be negotiations with other partner carriers.
Most major international airlines belong to one of the three industry associations -- Star Alliance, SkyTeam and oneworld. ANA is a member of Star Alliance, but Vietnam Airlines is part of SkyTeam. This means the duo must win the approval of their respective associations.
This is not the first time ANA has forged ties with a carrier outside Star Alliance. It signed a comprehensive partnership agreement with Garuda Indonesia, a member of SkyTeam, in 2013. Code sharing with Philippine Airlines, which does not belong to one of the big three associations, started in 2014.
The soaring number of Southeast Asians traveling to Japan motivated ANA to reach outside its own industry grouping. Partnerships with other Star Alliance members, it reckoned, would not be enough to make the most of this demand.
Another factor: limited takeoff and landing slots at Haneda Airport in Tokyo and Narita Airport in nearby Chiba Prefecture, ANA's home bases. "The shortcut to expanding our flight network is to enter into tie-ups with major local airlines," an ANA executive said.
That may be so, but some Star Alliance members are concerned that cross-association partnerships undermine the group's raison d'etre. As a result, there is a possibility the alliance will not approve ANA's arrangement with Vietnam Airlines.
Even within Star Alliance, ANA, United Airlines of the U.S. and Germany's Deutsche Lufthansa have entered into a deeper partnership, under which they jointly manage operations on major routes and share the earnings. This is "like multiple couples living under one roof," one industry insider said. "Partnerships among airlines are becoming increasingly complex."
The rise of new players, such as budget carriers and Middle Eastern airlines unaligned with the associations, is only adding to the complexity.
"A shake-up of the current partnership framework is inevitable," a high-ranking official at a major non-Japanese airline said. Under the circumstances, ANA's quest to ally with Vietnam Airlines could trigger a reshuffling of industry ties in Asia.