Editor,

Please include this letter in your paper as it will benefit your readers during the political discourse between previous and current Governments on the subject matter. Thank you.

The Lulutai company is important because people’s representatives have repeatedly questioned in Parliament its operations and financial performance and have not received a satisfactory answer from the former Prime Minister (Hu’akavameiliku) and his Board members. The issues concerning Lulutai were included as the basis of the 2023 and 2024 Vote of No Confidence (VONC) proposals and His Majesty’s speech at the closing of Parliament, calling for decreased Government involvement in business ventures that the private sector can ably perform. The problem of operating state-owned airlines is not new as there was a state-owned Royal Tonga Airlines that was chaired by His Majesty as then Prime Minister before it closed in the 1990s. I was compelled to write to Prime Minister Tu’i’onetoa (RIP) in 2020 through the Secretary to Cabinet (‘Etika Koka) asking him not to establish a new government owned airline but instead form a joint venture with Real Tonga because of the previous  problems with Royal Tonga Airlines.

After watching the Government’s recent press conferences with media and the subsequent press conference led by the former Prime Minister Hu’akavameiliku and two former Lulutai Board members, the following three issues have emerged which I would like to elaborate upon for the benefit  of the country.

1. Domestic Airlines are not a profitable business.

The retired directors of the Lulutai Board, during a press conference on 10 March 2025, explained that this is not a profitable business. This has already been confirmed by the results of our state-run airline Royal Tonga. The results are consistent for domestic airlines of our neighboring countries – most have been closed. The International Monetary Fund (IMF) has repeatedly reminded the government during its Article IV review missions to Tonga of their concern with the state-ownned Lulutai. The reason given by the former Chief Secretary (‘Etika Koka) to my 2020 letter was the importance of ensuring that the air travel needs of the people of the country are being serviced. It is pleasing that Hu’akavameiliku and his former Lulutai directors reiterated this fact to us and will certainly help the new Government’s plans for the future of Lulutai and the continuation of the domestic flight services.

2. The current problem of Lulutai is a liquidity problem. 

The current Minister of Public Enterprises, during one of their press conferences said that the Lulutai airline is in huge trouble and if the Government did not provide $7 million the company would be liquidated. From the press conference led by the former Prime Minister and the former members of the Lulutai Board, it is clear that cashflow or liquidity is needed. They requested a loan of $7 million to be guaranteed by the Government. It is important to understand that the problem with the liquidation of a company registered under the Companies Act is that the company has to be insolvent (with liabilities exceeding the value of its assets). Unfortunately, the financial statements from 2021-2022, 2022-2023 and 2023-2024 have not been audited to determine the solvency of Lulutai. However, a company may be liquidated due to a shortage of cash flow (liquidity) if the creditors of the company demand that the company pay their debts and the company is unable to do so. Sections 296 and 297 of the Companies Act provide for this and there is no clear demand from the creditors for the company to repay their debts immediately. 

3. Delay in completing the audit of Lulutai’s 2021-2024 financial statements.

It was clarified from the meeting of the former Prime Minister with the two outgoing Directors of Lulutai and the media on 10 March 2025 that only the financial statements for 2020-2021 have been fully audited. I was very surprised by this because this was the only year that Lulutai was run by the Tu’i’onetoa Government and none of the journalists asked why their Board was late in completing the financial statements for auditing. Under section 217 of the Companies Act the Directors are required to prepare the Annual Report of the company within five months of the end of the company’s financial year. Subsection (2) of section 217 provides for the penalties imposed on Directors who fail to comply with this provision.

These penalties are detailed in section 378 (2) of the Tongan Companies Act. Section 220 (b) of the Companies Act further detailed that contents of the Annual Report are to include the annual financial statements of the company and the Auditor’s report under section 220 (c). The fact that the former Prime Minister and his Board of Directors at Lulutai have not complied with this legal requirement for three consecutive years is not only a violation of the Companies Act of Tonga but also raises serious questions about the manner in which our national airline was being managed. Audited financial statements are essential for Board of Directors to make informed decisions on the conduct of a  business entity, including the conduct of Government.

The loan and investment ($10 million) of the Public Service Retirement Fund in Lulutai in 2024 is an important decision from their Board. With the delay in the audits of the Lulutai Airline, I do not understand where the reliable financial information used in their own due diligence came from. The former Prime Minister (Hu’akavameiliku) explained the gearing ratio used in the decision of the Government Retirement Fund Board was favorable. The gearing ratio is a measure of Lulutai’s financial ability to repay its debts (debt/equity). There are many financial ratios that the Retirement Fund Board should have looked at such as liquidity ratio, profitability ratio, breakeven capacity, etc. but if they only use the audited data for 2020-2021 then they are missing vital financial information for such an important decision.

The Minister of Public Enterprises mentioned during one of his press conferences that a Commission of Inquiry into the purchase of Twin-Otter aircraft by Lulutai was being considered. I was happy with the idea but I also saw that section 9 of the Royal Commission Act does not allow any evidence from the results of the Commission of Inquiry to be admitted to court.

The cost of a Commission of Inquiry will be high, and will the corresponding outcome of the Royal Commission help to bring those who were involved in administering the Lulutai to account? I doubt it based on Section 9 of the Royal Commission Act – perhaps political mileage. It will not contribute to the pending decision facing the Lulutai current Board of Directors and the new Government – to identify an airline to work with Lulutai and the public servants’ Retirement Fund to continue the provision of domestic flights. If this is possible, then the Government should gradually sell its share in the Lulutai airlines and focus on regulating the safety and reliability of domestic aviation. I do not believe that domestic air travel is a common public good that benefits the whole of society for the Government to continue to run it at a loss. Many of our less privileged people travel between islands by boat – perhaps only the financially privileged, senior government officials and foreign tourists will regularly use this service. It is vitally important to operate it commercially at a price that can cover the company’s expenses and make a profit. Our government has very recurrent revenue and it is important that we make wise decisions to reduce wastage.

There are three key lessons gleaned from these political discussions between the recent government of Hu’akavameiliku and the current government:

  1. many facts that should have been shared with the public are coming out voluntarily now;
  2. many of our laws and regulations are in place but are being poorly observed and enforced; and 
  3. frequent press meetings with the media community have been a great contribution to the development of our journalists to carry out advance research before asking their questions.

We hope our journalists (the fourth estate) will continue to play a key role in our democratic evolution. 

Best regards.
Samiuela T. Tukuafu,
Fiji.

Disclaimer: “The original text of this Letter was intended for publication in the Tongan language.”

Samiuela Tukuafu served as the Deputy Governor of the National Reserve Bank of Tonga. He joined the Asian Development Bank in 2000 and retired in 2018 as ADB Country Director for Cambodia, with experience in the financial sector, infrastructure, and public sector management across Asia and the Pacific. He previously held positions as Deputy Accountant General for the Ministry of Finance in Tonga and Senior Auditor at Price Waterhouse (Fiji).
 

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