Public-Private Partnership Impact Stories Samoa: Virgin Samoa Airlines Photo © Michael Renner A joint venture between the government of Samoa and Australia’s Virgin Blue, a low-cost carrier, turned an annual $7.5 million government subsidy into a $6.9 million profit in just two years. IFC served as the lead advisor for the innovative public-private partnership, which established a new national airline, Virgin Samoa (formerly Polynesian Blue), and restructured the existing flagship carrier. The agree- ment was signed in September 2005. By 2009, 243,000 people received improved airline service, and consumers saved $57.7 million in reduced airfares between 2005 and 2009. The joint venture agreement allowed Polynesian Blue to take over the international routes and the restructured flagship carrier, Polynesian Airlines, to operate regional and local flights. This series provides an overview of public-private partnership stories in various infrastructure sectors, The project was implemented with the financial support of DevCo, a multi-donor facility affiliated with the where IFC was the lead advisor. Private Infrastructure Development Group. DevCo provides critical financial support for important infra- IFC Advisory Services in structure transactions in the poorest countries, helping boost economic growth and combat poverty. DevCo Public-Private Partnerships is funded by the UK’s Department for International Development (DFID), the Austrian Development 2121 Pennsylvania Ave. NW Agency, the Dutch Ministry of Foreign Affairs, the Swedish International Development Agency, and IFC. Washington D.C. 20433 ifc.org/ppp BACKGROUND jet operations, and the fully owned Government entity retained As a small, isolated country in the Pacific, Samoa is dependent on the short-haul international services from Samoa to Tonga and tourism for jobs and economic development. The government’s America Samoa as well as domestic services. It also retained objectives for the aviation industry included providing safe, responsibility for ground handling operations. The joint venture efficient, and affordable international air transport to Samoa to shareholders are the Government of Samoa and Virgin Blue Invest support expansion of the tourism industry. Operating Polynesian Co Pty Ltd, with the majority shares, and a minor holding by Airlines in a commercially and financially sustainable manner was Aggie Grey’s Hotel Ltd. In December 2011, it was announced also a government priority. that Polynesian Blue would be rebranded as Virgin Samoa. Neither objective was being met. Polynesian Airlines’ inappropriate route and fleet structure, expensive aircraft leases, overstaffing, and uneven demand levels contributed to a $7.5 POST-TENDER RESULTS million loss (70 percent of the government’s total budget deficit) in 2004. Tourism was growing only 4 percent a year, far below • As of 2009, private sector investment was $10.6 neighboring destinations such as Fiji. million, greater than the expected $5 million over The government approached IFC to find an alternative to the life of the project. liquidating Polynesian Airlines. • A 130 percent increase in inbound seat capacity from prior to the joint venture. IFC’S ROLE IFC was mandated to conduct a review of Samoan aviation, • Since 2005, indirect tax collection from additional analyze the performance of Polynesian Airlines, review options tourist arrivals is estimated at $1.86 million, and available to the government, and recommend an approach that the total positive fiscal impact over the life of the would achieve the government’s objectives. After recommending project is $6.9 million. that the government implement a public-private partnership with • From 2005-2009, 243,000 people received improved an international aviation investor, IFC was asked to serve as lead advisor. IFC assisted in structuring the joint-venture agreement, airline service, far exceeding the estimate of 80,000 evaluating business plans, negotiating contracts, and achieving beneficiaries. financial closure. • Consumers have saved $57.7 million in reduced airfares between 2005 and 2009 (reflecting reduced TRANSACTION STRUCTURE airfares of between 30 and 45 percent. IFC designed an innovative public-private partnership model in consultation with the investors. Under the arrangement, the • Indirect benefits of resulting expansion in tourist international aviation investor would manage and operate the facilities created 671 jobs and increased national new airline, providing the fleet capacity as well as commercial salaries and wages by $1.4 million. and managerial oversight. The government would provide traffic * Unless otherwise stated, monetary values are presented rights, operational support, flight operations personnel, and other in 2009 US dollars. Results are from a post-completion productive assets. The government would also take the lead in evaluation completed January 2010. negotiating local contracts, mobilizing stakeholder support, and championing the business. The model was designed to take advantage of the international This story was originally published in 2009, and updated on 08/2013 partner’s cost structure, leverage marketing and distribution strengths, and maximize profitability. Significantly, the structure allowed a low-cost carrier to participate, a first in airline privatization. BIDDING At IFC’s recommendation, three major regional carriers—Air New Zealand, Qantas, and Virgin Blue—were invited to compete. The winning proposal from Virgin Blue provided a business plan that required the smallest government subsidy, guaranteed air transport access to Samoa, and contributed to tourism development. The joint venture is run on a profit-making commercial basis without government interference. If an unviable route or more frequent flights are required, the government is required to subsidize the additional costs. The joint-venture took on long-haul international