Former exec says Viva Macau sabotaged by investors

Joseph Said

Failed airline Viva Macau went bankrupt mainly because it was sabotaged by new investors, a former executive at the company has claimed in an exclusive telephone interview with the Times.

Joseph Said, a senior manager of Viva Macau, has accused private equity fund MKW Capital of mismanaging the airline and driving it to bankruptcy. He claims that a Commission Against Corruption (CCAC) investigation into Viva Macau may be “political” and “not targeting the right people.”

The CCAC is investigating Viva Macau at the request of the Industrial Development and Marketing Fund (FIDC) in relation to a MOP212 million loan to the now-defunct airline. The anti-corruption authority is interested in determining whether there were any illegal transfers of assets from Viva Macau to external companies or individuals prior to its 2010 bankruptcy.

Meanwhile, the Macau government is continuing to press charges against Viva Macau’s main creditor and the guarantor of the FDIC loan, Hong Kong-based Eagle Airways. The total debt of Viva Macau amounts to some MOP1.14 billion, but only a small fraction of that has been recovered through liquidation of the firm’s remaining assets.

Said joined Viva Macau in 2006 and was responsible for the company’s Australian and South Pacific routes, which he described as the most profitable leg of the company, accounting for as much as 90 percent of the company’s revenue at one point.

According to Said, the airline was in a healthy financial position at the time of the 2008 and 2009 loans from the FIDC, which amounted to a combined MOP212 million.

“From what I can tell, the loan to Viva Macau was done in good faith – [with the aim for it] to become the airline of Macau,” he told the Times. “That airline had a future; a massive future.”

“Where did the 200 million [patacas] go? That’s a lot for an airline. With the money provided by the government, we could have operated that airline for two years with zero income,” he said, adding that “the problems occurred higher up at the company and were to do with mismanagement.”

Private equity investment firm MKW Capital, led by principals Reginald MacDonald, Kevin McKenzie and James Wolf, acquired a majority stake in the airline in 2007.

Joseph Said said that MacDonald established seven auxiliary companies in Macau to provide different services to the airline prior to its bankruptcy, ranging from recruitment to advertising. Viva Macau was directed to hire the services of the auxiliary companies, which “charged a fixed fee without negotiation to Viva Macau.”

The seven alleged auxiliary companies include online travel agency Macau.com, recruitment agency MacauHR.com and magazine publisher Destination Macau, which, according to Said, were the sole suppliers of the various marketing needs of the airline. These companies were recipients of investment from MKW Capital.

Said claims that it was during the tenure of MacDonald “that the problems started.” In April 2009, an influential person in Macau – whom Said would not identify – advised the airline executive to retire from Viva Macau. “About a year later the company went down,” he said.

The Times attempted to contact MacDonald, McKenzie and Wolf last week by various means, but none of the three answered messages. Meanwhile, the CCAC did not respond to an enquiry about whether or not the MKW principals were being sought in connection with the investigation.

Andrew Pyne, the brains behind the airline and its chief executive officer from conception until the 2007 MKW Capital buyout, also agreed to speak to the Times about the airline’s demise. He claims the company had always faced an uphill battle on account of “structural issues that made it difficult for Viva to make money.”

Pyne said that Viva Macau was only allowed to operate as a sub-franchisee of Air Macau and only on the routes the latter had no interest in. According to the airline’s founder, not only did Air Macau retain the exclusive rights to fly to most popular destinations (such as China, Taiwan, Singapore and Phuket), it also had the ability to confiscate any routes it desired from Viva Macau.

“What finally killed Viva was the terms of the Air Macau franchise, which was very restrictive,” said Pyne. “Under the sub-franchise granted by Air Macau, they could kick us off a profitable route if they wanted.”

“The way [for the government] to help Viva was to loosen the franchise, rather than the handout [loan],” he added. “Even at the time it seemed to be a very off, misguided policy.”

When asked whether he knew what happened the MOP212 million loan to Viva Macau, Pyne said, “I have no idea where the money went… I assume that the loans were used to cover the losses of the company. There was no element of corruption during my time at the company – everything was above board.”

Pyne had initially partnered with William Ho, the late brother of Macau’s former Chief Executive Edmund Ho, and another investor, Ngan In Leng. After his father’s death, William Ho’s son Kevin Ho inherited the executive director position at the company, but kept his distance from the day-to-day operations.

Speaking to the Times yesterday, Kevin Ho said that he could not provide an accurate account of what happened in the airline’s final years. “I was not involved in the company at all – I just inherited the position of executive director from my late father [William Ho],” he said, adding that he couldn’t recall the specific details.

After the MKW buyout, Pyne initially retained a small stake in the company and a position on the board, but he says that since no board meetings were ever held he eventually decided to sell his remaining shares.

Another airline executive, Con Korfiatis, who was previously the company’s chief operating officer and chief financial officer, took over as CEO from 2007 to 2009, leaving before Viva Macau entered its final days. Korfiatis could not be reached for comment.

In 2011, MKW Capital claimed that the Macau SAR government had unjustifiably shut down the airline. In 2014, the firm pressed for as much as USD200 million in equity loss caused by the sudden shutdown. Macau’s Civil Aviation Authority has replied that Viva Macau was grounded for failing to keep up with payments for fuel, aircraft leases and government bailout loans.