By Rob Taylor
CANBERRA (Reuters) - Australia's Qantas Airways Ltd expects an investigation into loss making fuel-hedging in its Vietnamese joint venture airline to run for months after two executives were barred from leaving the country.
Jetstar Pacific Chief Operating Officer Daniela Marsilli and Chief Financial Officer Tristan Freeman are unable to leave Vietnam as authorities investigate trades that resulted in a $31 million loss for the airline in 2008-09.
The case has drawn parallels with China's arrest of four senior Rio Tinto mining executives for commercial espionage, with business groups warning it could hurt foreign investment sentiment toward Vietnam.
"I think it might deter some Australian businesses if this drags out and/or if it has a poor outcome," Western Australia-Vietnam Business Council Assistant President Peter Jonker told The Australian newspaper Monday.
Qantas Chief Executive Alan Joyce has defended the two executives, who have not been detained and are free to carry out their normal work. Their passports have not been confiscated.
"We are, obviously, concerned. We are concerned about the wellbeing of our people. That's the top priority for us. We are working very closely with the authorities," Joyce said.
The Ho Chi Minh City-based airline was still operating normally, a spokesman said without elaborating. The Australian Embassy in Hanoi declined to comment and there was no immediate comment from the Vietnamese Foreign Ministry.
The grounding order has raised speculation that powerful old-guard sections of Vietnam's communist government were opposed to the Qantas tie-up in the country's second biggest airline. It was the government's first flirtation with privatization.
Relations between Australia and Vietnam have strengthened recently, with trade worth $6.7 billion in 2008 and Australian investment in Vietnam growing. The General-Secretary of Vietnam's Communist Party, Nong Duc Manh, visited Canberra in September.
But Vietnam's Tuoi Tre newspaper last week quoted state investigators saying the three Jetstar employees ignored a board resolution clearing them to buy aviation fuel futures only until the end of 2008. They continued their activity until May 2009.
Hedging is used by airlines to stabilize fast-changing jet fuel prices, committing them to an agreed price for future sales. If fuel prices fall and they hedged for a higher price, the carrier must pay the above-market price agreed.
Qantas Chief Executive Alan Joyce said the two executives had done nothing wrong and predicted the case would not harm Jetstar's business operations in Vietnam. Qantas has the right to lift its stake in Jetstar Pacific to 30 percent this year.
"The losses that were incurred were a part of global business risk," Joyce said. "This investigation is solely focused on one issue, which is the fund hedging activity."
Joyce said a former Jetstar Pacific chief executive, Luong Hoai Nam, had also been arrested by Vietnamese police investigating the hedging losses, which came amid tumult in world financial markets and the airline industry.
Australia's Virgin Blue, Singapore Airlines, Cathay Pacific and Malaysia Airlines have also reported huge losses as soaring fuel prices plummeted in the wake of the global financial crunch.
Qantas, which last week announced a non-equity alliance between Jetstar and Malaysia's AirAsia, owns 27 percent of Jetstar Pacific. Other shareholders include State Capital Investment Corp, the Vietnam government's investment arm.
Since Qantas involvement in 2007, it has lifted its share of the market from 14 to 25 percent. Qantas has the right to lift its stake in Jetstar Pacific to 30 per cent by mid-2010.
(Additional reporting by John Ruwitch in Hanoi; Editing by Nick Macfie)
