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Peau Vava'u views

Nuku'alofa, Tonga

I would be most grateful if you could try to get Peau Vava'u views in some of your articles - it may help to balance things up a little. I am seeking your kind cooperation and help with this matter.
Soane Ramanlal

Press Release:

Background to establishment of Peau Vava'u Limited.

On 18th May 2004, Royal Tonga Airlines, the sole domestic air services operator went into liquidation effectively ceasing all domestic air services to the outer islands of the Kingdom. Desperate to re-establish vital domestic air services, the Government of Tonga requested His Royal Highness Crown Prince Tupouto'’a to set up a domestic air service operation. The rationale of Government in making this request to His Royal Highness involves several key factors including:

1. The timing of re-establishing services was critical and Government had no alternative operators who could provide the air services in the absence of Royal Tonga, hence their approach to His Royal Highness;

2. Through the Shoreline Group which has offices in Vava...’u, Ha...’apai and Eua, there was sufficient infrastructure and resources already available to very quickly set up the domestic airline operation;

3. His Royal Highness had proven the ability to turn around formerly inefficient core vital sectors which had been previously managed and operated by Government vis-à-vis, the power and communications sectors;

4. His Royal Highness has the financial resources through his existing business interests to expeditiously establish domestic air services. The initial investment His Royal Highness made to establish Peau Vava...’u Ltd exceeded NZD500,000 and throughout the first three-month period in which Peau Vava...’u Limited was operating, a further NZD650,000 was injected into the company;

5. His Royal Highness is committed to ensuring that sectors offering basic social and economic services and which impact on the people of Tonga are managed and developed in a manner that facilitates provision of basic services at the highest of standards but at affordable costs.

6. Access to a strong management team that could support the domestic air services operations;

7. Government had the confidence that His Royal Highness would not allow the void in domestic air services to re-occur.

In view of Government's request and the evident negative impact on social and economic development arising from the lack of air services, His Royal Highness within a month from the ceasing of domestic air operations established Peau Vava'u Limited, a wholly local owned limited liability company incorporated in the Kingdom, to fulfill the need for consumer domestic transportation. Services began on the 9th June 2004 with Peau Vava'u Limited being the first to operate commercial services.

Background to Single Operator Policy of Government

At the time that Peau Vava'’u Ltd was established, the Government of Tonga who had owned 100% of Royal Tonga Airlines did not have a comprehensive policy for domestic air operations. It was made clear to Peau Vava'u Ltd that their license to operate would be valid for a period of three months whilst they sought the advice of ICAO regarding the establishment of an appropriate domestic civil aviation policy for the Kingdom.

On the recommendation of ICAO, the framework for domestic civil aviation policy was established and approved by Privy Council on 30th July 2004.

The basis for the Government Policy rested on the recognition of the importance of a sustained safe and secure domestic air transport system as a catalyst and essential service for the socio- economic development of the people of the Kingdom of Tonga.

Government, on the basis of ICAO and airline consultants recommendations, further realized because that there were limited financial and human resources with appropriate technical capabilities in aviation and moreover a limited market size to sustain economic operations based on free market forces, approved that only one operator will be licensed for the provision of schedule air transport services within the Kingdom.

At the time the policy was announced, there was already operating in the Kingdom another operator (Fly Niu) servicing the Tongatapu-Ha'apai-Vava'u route. No services were available to Eua and Niuas from either operator although Peau Vava'u had proposed to service these airports.

It was made clear in the policy announced that applications would have to be submitted so that consideration could be made on who the single operator would be. The selection of the single operator was to be based upon a competitive, transparent and even handed manner based upon the fulfillment of criteria which included:

Route Structure ...– operator is to provide services to ALL of the Kingdom...’s airports;

Frequency of Operations ...– minimum level of service must be provided (3x services to Vava...’u-Ha...’apai daily; 2x services to Niuafo...’ou-Niuatoputapu weekly; and 2x services to Eua daily);

Capacity ...– aircraft capacity must meet the tourism and air freight demands of the outer island developments;

Ownership ...– preference is to Tongan-owned business but the owners must have the ability to invest in the operations and keep financial commitments;

Capital Investment ...– operator is required to demonstrate how assets will be provided and financed

Safety Certification ...– operator is required to undergo full safety certification and to receive a Tongan Air Operator Certificate;

Quality Control ...– operator is required to demonstrate that there are adequate management information systems and processes to support continuing quality control systems;

Insurance ...– operator must maintain adequate insurance coverage consistent with industry standards;

Business Plan ...– operator to supply a business plan which demonstrates a sound k knowledge of the requirements of inter-island travel

Fare Structure ...– all fares to be capped by the last approved fare structure of Royal Tonga Airlines and any increase in fares requiring prior approval of the Ministry of Civil Aviation but the operator is required to provide substantial economic justification

Domestic Aviation Development ...– operator is required to pro-actively develop domestic aviation through providing services to places currently not serviced,

The closing date for submissions was established for 12th August, 2004. Peau Vava...’u Ltd submitted its proposal for operation of the domestic air services which covered all of the criteria for assessment.

Fly Niu did not submit a proposal to be a single operator.

Notwithstanding the fact that Fly Niu did not submit a proposal, the consideration for Peau Vava...’u Ltd to become the single operator was based strictly on fulfillment of the criteria upon which the assessment was based.

Government, on August 13th advised Peau Vava...’u Limited that approval had been granted for them to be the sole operator for the Kingdom'’s domestic air services effective from the 15th August 2004 to 14th August 2006.

Injunction following Granting of the Sole Operator License

On August 18th 2004, Fly Niu who did not submit a proposal to become the sole operator, was granted an injunction by the Supreme Court of Tonga to continue their operations effectively squashing the single operator license that had been granted to Peau Vava...’u Ltd.

No consideration had been given to the fact that Peau Vava'u Ltd had made extensive financial commitments or that Peau Vava'’u Ltd would suffer significant financial losses if their sole operator license were revoked.

The total financial impact on His Royal Highness...’ of the injunction period amounts to over TOP$1.8 million including contracts which were negotiated and concluded on the basis of sole operator status.

Summary of the Facts:

1. His Royal Highness was requested by Government to establish the domestic air services to fill the void created by the demise of Royal Tonga Airlines because Government had no alternatives at the time;

2. That significant financial resources have been invested in Peau Vava'u Ltd;

3. That significant management time from His Royal Highness...’ existing Group of Companies have been invested to ensure the stability of the domestic air services operation;

4. That the single operator policy was recommended by ICAO and other airline consultants because they recognized that the physical size of the market in Tonga was simply to small to sustain more than one operator;

5. That Government did not want a repeat of what happened to Royal Tonga to deprive people of air services;

6. That Peau Vava'u Ltd submitted a proposal for a single operator license fulfilling the criteria for assessment;

7. That Fly Niu did not submit a proposal for a single operator license;

8. That Government had granted Peau Vava'u Ltd the single operator license for a period of two years.

-Soane Ramanlal