The decision by Vanuatu to prepare its flag carrier for privatisation is likely to hit some of the same snags experienced elsewhere in the Pacific Islands.

Vanuatu, located 2,000km east of Australia, decided to sell 49% of Air Vanuatu to an international airline, following a recommendation from New Zealand consultants.

Three obstacles stand in the way of privatisation, however. Firstly, island aviation is rarely profitable enough to attract private capital. This is especially true when airlines become privatisation candidates when they are losing money. Air Niugini and Air Vanatu both face this problem.

Secondly, as the Solomon Islands discovered in 1994, few Pacific Islands have enough private capital to retain local ownership as required under air service bilaterals. The cash-strapped Solomon Islands government had to reject the only bid for Solomon Islands because a Hong Kong company would have ended up owning 70%.

The final obstacle stems from the isolation that most island nations fear without air service. They view it as essential and are reluctant to lose control. This was the main reason Fiji recently decided not to reduce its stake in Air Pacific below 51%.

Source: Airline Business