1. Why does the aviation industry often have a foreign ownership “cap” ?

In many other industries, foreign investors can hold a controlling stake or even 100% (depending on the sector and each country’s policies). But with aviation, the story is more complex because this is a highly specific industry. First, aviation operations are closely tied to national security, defense, and the ability to operate in a country’s emergency situations. Domestic airlines often act as a strategic reserve force.

Furthermore, this industry relies strictly on strategic infrastructure such as airports, flight slot allocation, and ground services. Airspace and infrastructure are limited resources, requiring macro-level regulation. At the same time, exploitation activities are directly linked to traffic rights between countries. According to international rules, an airline can only utilize aviation agreements if it proves that its ownership and effective control belong to citizens of the registering country. In addition, aviation requires strict compliance with flight safety, operational management, and the security of operational data.

Therefore, many countries apply foreign ownership “caps” to ensure airlines still meet the “airline nationality” criteria to exploit domestic/international flight networks under agreements, while also limiting the risks regarding effective control.

2. Vietnam’s Context: What does the 34% cap and the proposed increase to 49% mean ?

According to the latest draft, Vietnam is considering raising the foreign ownership cap in airlines from 34% to 49%. Looking at the current reality, the foreign ownership ratio in Vietnamese airlines still complies with the 34% maximum. Typically, the national airline currently has a foreign partner accounting for about 5.62% of its charter capital (down from 8.771% in 2016). The Draft Decree on aviation transport currently gathering feedback has proposed raising this level to 49%, with the mandatory condition that domestic individuals or organizations must hold the largest proportion of capital.

Why is 49% a “notable” number? The 49% level is often seen as a “strong opening” threshold while still maintaining a domestic majority (51%). This added margin easily creates an incentive to attract strategic investors and long-term capital flows from abroad. Attracting significant resources can effectively support financial restructuring, fleet expansion, digital transformation, and comprehensive operational quality improvement. However, “raising the cap” is only a necessary condition. The sufficient condition lies in designing a legal framework to open up while still managing “effective control”.

3. Comparing foreign ownership limits in the aviation industry of various countries

Below is a general overview of policy trends globally. Note that each country may have significant differences in managing domestic versus international airlines. Regulations also vary regarding the percentage of share ownership versus voting rights, nationality requirements for the board of directors or executive management, and specific conditions regarding effective control.

• United States: This country strictly manages voting rights and control. The US has a tradition of tight control to ensure US airlines meet the “nationality” criteria under US law and agreements. US policy practices often focus on limiting the percentage of voting shares held by foreign investors. At the same time, they maintain regulations to restrict foreign investors from achieving effective control in operations and management.
• European Union (EU): This region has a more open orientation but always emphasizes the criteria of “majority ownership and control”. The EU generally has a relatively high level of openness for intra-bloc investors, but for non-EU/EEA investors, many mechanisms still require strict compliance. Specifically, an airline must be majority-owned and effectively controlled by EU/EEA entities. This shows that not just the “% of shares”, but the factor of actual operational decision-making power is the key point.
• Singapore and some aviation hubs: These countries are open to attracting capital but still establish safe “choke points”. Aviation hubs are usually very open in raising capital and international cooperation. In return, they still maintain legal mechanisms to ensure that the flagship airline is not dominated in core strategic decisions.
• Some ASEAN countries: This region exhibits diversity, with a tendency to try to balance opening up and protecting national interests. ASEAN does not have a uniform template. Some countries may open up more to attract capital and develop connectivity, while others keep tighter limits due to considerations of security, sovereignty, or domestic market structure.

Summarizing the models above, Vietnam plans to raise the cap from 34% to 49% to better attract capital, but it needs a controlled opening through voting rights. Learning from the US model of separating ownership and voting rights, or the EU’s standard of maintaining airline nationality, is essential. Concurrently, Singapore’s model of opening capital while retaining strategic decision-making rights will provide a basis for Vietnam to build an appropriate roadmap.

4. Raising the cap to 49%: Practical benefits for Vietnam’s aviation market

Representatives of the drafting agency lean toward keeping the 49% proposal to create room for corporate development. The practical benefits are very clear:

Raising the cap helps increase the ability to mobilize long-term capital. Aviation is a capital-intensive industry for activities such as purchasing/leasing aircraft, maintenance, fuel, training pilots and engineers, ticketing systems, and operations. Raising the cap can increase attractiveness when raising capital. Consequently, businesses can diversify their financial structures and reduce their reliance on debt in a context of fluctuating interest rates and cyclical risks.

Besides capital, this policy helps attract strategic partners with capabilities in management, operations, and technology. Strategic investors bring not only money but also safe operating standards. They provide revenue optimization systems, experience in opening new routes, codeshares, network cooperation, and the ability to apply digital technology in customer care and predictive maintenance.

These factors directly increase regional competitiveness. When airlines compete on price, experience, and network coverage, capital and technology are vital. A reasonable cap increase can help Vietnamese airlines expand their scale faster, substantively improve service quality, and increase their resilience against unexpected market fluctuations.

5. Risks and “blind spots” if only looking at the % of shares

Conversely, representatives of the national airline expressed caution, viewing the 34% level as the safe limit to maintain the autonomy of the domestic sector. There are many hidden risks behind the 49% figure:

First is the risk of losing effective control even without exceeding the cap. Investors might not hold more than 49% of the shares but could still achieve operational dominance. This is done through structures of shares with different voting rights, internal shareholder agreements, the right to appoint key personnel, or through constraints in financial contracts and disbursement conditions. Furthermore, under current general regulations, a group of shareholders owning 35% or more of the capital already has the right to veto major corporate directions. A 49% cap could weaken the regulatory ability of domestic entities.

Next is the risk of conflicting goals regarding public policy. Some national objectives do not always align with the short-term profit maximization goals of investors. These include the duty to maintain flight routes connecting remote areas for local economic development, performing transport missions in emergency situations, and prioritizing operational capacity when infrastructure is overloaded. Statistics show that 1 USD from the aviation industry generates up to 3.25 USD of spillover value for the economy, proving the importance of this infrastructure. Foreign entities might only prioritize cash flow, leading to an imbalance in the responsibility to stabilize the system when crises occur.

In addition, there are risks related to the security of operational data and information safety. Airline operating systems contain highly sensitive data, including flight schedules, operational plans, aircraft technical data, and passenger information. Therefore, opening up capital usually needs to be accompanied by strict conditions. It is necessary to establish cybersecurity barriers, clear regulations on data storage, as well as decentralized system access and transparent audit standards.

6. Suitable solutions for Vietnam: “Opening to 49%” but must have control mechanisms

Designing a framework of “49% accompanied by maintaining actual decision-making rights” is a prerequisite. If raised to 49%, the following layers of protection must be synchronized. There must be a clear separation between share ownership and voting rights. Not all shares should have equal voting rights. The important thing is to prevent foreign investors from gaining indirect dominance. Besides, there need to be specific regulations on actual decision-making power, reflected in the right to appoint/dismiss senior personnel, the right to decide on exploitation strategies, or the right to decide on investment budgets. An effective safeguard is a minimum requirement for the percentage of domestic representatives on the executive board.

Management agencies need to build a list of “strategic decisions” to be reserved. This list will contain directives requiring a very high approval rate or reserving veto power for the domestic shareholder group. These decisions could include: changing traffic rights, strategic flight networks, buying/leasing/selling aircraft exceeding a certain value threshold, transferring core assets, corporate mergers/acquisitions, or changing key operating system providers. The goal is to allow foreign investors to participate deeply, but they cannot single-handedly dictate issues affecting transport security.

For diversification, authorities could consider a more flexible ownership ratio for the auxiliary services group. As recommended by the leadership of a private airline, for businesses specializing in providing services such as aircraft maintenance, logistics, ground handling, or catering, the foreign ownership cap could be considered to be loosened beyond 49% (but not exceeding 66%). This flexibility helps quickly attract technology and resources into the supply chain while ensuring independence for the core flight operations sector.

Concurrently, it is necessary to establish a strict investor appraisal mechanism. These standards aim to filter out “short-term” capital flows or other risks. Criteria include transparency of capital sources, compliance with anti-money laundering, a history of good flight safety compliance, no violations of international sanctions, as well as strong financial capacity and a commitment to long-term development.

Implementation needs a phased roadmap. Instead of opening simultaneously, it should begin by piloting a few airlines that meet specific governance and safety criteria. After an impact assessment period of 12–24 months, the management agency will consider expanding if the model proves truly effective.

Finally, any policy is only effective when there is synchronization in infrastructure, flight slot coordination, and the competitive environment. Opening the ownership cap is only truly powerful when the market has a corresponding “policy runway”. It is necessary to ensure transparency in slot allocation, continuously upgrade airport capacity, perfect the competitive framework against monopolies, and constantly improve the quality of ground services and logistics systems.

7. Conclusion

The proposal to raise the foreign ownership cap from 34% to 49% could be an important step to boost the financial health and competitiveness of Vietnamese airlines. However, if the cap is raised without mechanisms to protect actual orientation rights, the risks of indirect dominance and conflicts over public interests will increase significantly. The most reasonable solution for Vietnam is a combined approach: proceeding to open capital (up to 49%) simultaneously with establishing control safeguards, conducting transparent investor appraisals, implementing a specific roadmap, and accelerating infrastructure synchronization.

This article is for informational purposes only and does not replace professional legal advice. For support tailored to your situation, please contact a lawyer or legal professional.

FAQ (Frequently Asked Questions)

1)Will raising the foreign ownership cap to 49% cause a loss of control over Vietnamese airlines ?

Not necessarily. If mechanisms to protect actual decision-making rights are well-designed, with a clear distinction between share ownership and voting rights, as well as reserving strategic decisions, the airline can still be mastered by domestic entities even if foreign investors hold 49%.

2) Why do many countries not allow foreigners to own a majority of airlines ?

The reason is that the aviation industry is strictly tied to airline nationality, traffic rights, transport security issues, and extremely high safety management requirements. Countries need to maintain these conditions so their airlines are permitted to exploit transport rights under international agreements.

3) Is 49% a common level globally ?

 49% is quite a common percentage for the approach of “opening up but not letting foreigners dominate”. However, the key point for many countries remains the accompanying regulations on actual operational decision-making power, rather than solely relying on the percentage figure.

4) If the cap is raised, what is the biggest benefit for airlines ?

 The biggest and most obvious benefit is that raising capital becomes more favorable, enhancing opportunities to access strategic partners, thereby elevating management capacity, technology, and operational capabilities. This contributes positively to increasing competitiveness as well as resilience against difficult market cycles.

5) What does Vietnam need to do to reduce the risk of exceeding the dominance limit ?

It is necessary to build a synchronized management mechanism regarding voting rights, strictly monitor internal agreements among shareholders, retain the right to appoint personnel to core positions, maintain a list of strategic decisions to be reserved, and carry out a thorough investor appraisal process.

6) Will opening the ownership cap help reduce airfares ?

 Indirectly, this could happen. If airlines have added financial potential and improved operational capacity, market competition will increase, exploitation efficiency will improve, and the market could stabilize. Nevertheless, airfares are still heavily influenced by input factors such as fuel costs, infrastructure fees, flight slot allocation, and regulatory policies from state agencies.

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