Lulutai Airlines in crisis: Tongan government faces tough choices amid financial struggles

Tonga’s national airline, Lulutai Airlines, is facing a critical financial crisis, requiring a substantial bailout from the government to remain operational.

Minister for Public Enterprises, Piveni Piukala, revealed at a media briefing on 21 February that the airline urgently needs T$7 million (NZ$5.2 million) to sustain its operations.

Without this financial injection, Piukala warned, Lulutai Airlines will collapse.

“Right now, Lulutai is drowning,” Piukala stated grimly, acknowledging the precarious position of the government-owned airline.

Lulutai Airlines has already received significant financial backing, raising serious concerns about the viability of continued government support. The Minister disclosed that the Retirement Fund Board had invested up to T$10 million (NZ$7.4 million) in the airline - T$4 million in shares and a further T$6 million as a loan.

This revelation prompted Minister Piukala to question the rationale behind such a risky investment.

“I asked the CEO of the Retirement Fund, ‘What made you so confident investing the retirement fund of government workers into a company with very cloudy services?” he said, highlighting the uncertainty surrounding Lulutai’s financial health and governance.

Despite these significant financial injections, the airline continues to struggle, raising doubts about its ability to turn a profit or even break even.

Adding to the controversy is the uncertain legal and governance status of Lulutai Airlines.

In November 2023, former Prime Minister Hu’akavameiliku announced that Lulutai would become a Public Enterprise to ensure proper oversight.

Tonga Prime Minister Dr ‘Aisake Eke. Photo/Fale Alea o Tonga

However, the new Prime Minister Dr ‘Aisake Eke has since revealed that no progress has been made on this transition.

More alarmingly, Lulutai Airlines has failed to submit any annual reports on its financial performance or operations to either Parliament or the Ministry of Public Enterprises - an omission that raises serious transparency concerns.

Piukala has now confirmed that the process of officially gazetting Lulutai as a Public Enterprise is nearing completion. However, this move comes with significant legal and financial implications.

One of the most pressing issues is the legal liability of Lulutai’s directors. If the airline has been operating while insolvent, then under corporate governance laws, the directors could be personally liable for any outstanding debts incurred before Lulutai is officially declared a Public Enterprise.

This presents a major dilemma for the new government. If it refuses to fund Lulutai, the airline will collapse, leaving Tonga without a national carrier and potentially putting directors at risk of legal action.

However, if the government commits yet another multi-million-dollar bailout, it risks pouring scarce public funds into a business that has already failed to prove its financial viability.

A damaged Lulutai Airlines de Havilland Twin Otter airplane was repaired in January 2024. Photo/Supplied.

This issue has backed the new government into a corner, forcing it to navigate between public outrage, financial responsibility, and political fallout.

The question now stirring within government circles is: How low can the government go before it hits a breaking point?

The reality is that the government cannot afford to keep bailing out a failing airline indefinitely.

A sustainable solution must be found - one that shifts the financial burden away from taxpayers and creates incentives for private investors to take on the risks and debts associated with Lulutai.

With a general election approaching, the government is under immense pressure to resolve Lulutai’s financial woes before voters head to the polls.

The last thing the administration wants is to be weighed down by a failing airline that symbolises poor governance, financial mismanagement, and misplaced priorities.

Australia was proud to partner with Tonga to support Lulutai Airlines achieve reliable, sustainable, and safe domestic connectivity. Australia High Commissioner to Tonga Rachael Moore, left, is pictured here with former Prime Minister Siaosi Sovaleni at Fua'amotu International Airport in 2022. Photo/Facebook

Perhaps the most pragmatic approach for the government is to carefully deliberate behind closed doors, finalise a clear decision, and announce it publicly alongside a new operator.

Discussing the airline’s financial troubles openly in media briefings only adds to public anxiety and undermines investor confidence.

A structured, well-planned transition - whether through privatisation, a strategic partnership, or a complete overhaul - must be executed without unnecessary speculation and media leaks.

The government needs to act decisively and professionally, ensuring that whatever decision they make is backed by a solid operational plan.

At this point, divine intervention may be the only thing that can save Lulutai Airlines.

But the government must also play its part - not by throwing more money into a sinking ship, but by making the hard choices needed to secure a sustainable future.

Melino Maka is a political commentator and community leader. This op–ed was first published by Tonga Independent News. The views expressed in this article are solely those of the author and do not necessarily reflect the views of Pacific Media Network.