Bankrupt low-cost airline Viva Macau - Sociedade de Aviação Ltda had sought investments from five international companies before its eventual grounding in 2010.

Documents seen by Business Daily reveal that Malaysia's AirAsia Berhad and investment bank Goldman Sachs (Asia) LLC were among the interested parties.

A source close to Viva Macau says the airline was "close to settling a deal" with one of the potential investors before its sub-concession contract was revoked.

The airline was grounded on March 28, 2010 after a series of flight cancellations left thousands of passengers stranded. It was declared bankrupt five months later.

Viva Macau appealed to the Court of Second Instance claiming that Secretary for Transport and Public Works Lau Si Io issued an illegal administrative act instructing flagship carrier Air Macau Co Ltd to end Viva Macau's sub-concession.

The intermediate court denied that appeal last January.

Viva Macau's lawyer Henrique Saldanha confirmed to Business Daily the company had appealed to the Court of Final Appeal.

AirAsia and Viva Macau's parent company Eagle Airways Holdings Ltd signed a letter of intent that would allow the Malaysian carrier to "subscribe no less than 49 percent of the shareholding in Viva Macau".

The letter, dated March 24, 2010 - four days before the grounding, was signed by AirAsia executive vice-president Chin Nyok San and Eagle Airways director Chris Siew Pek Tho.

"AirAsia shall provide all commercial, operational and technical support in respect of the day-to-day running of Viva Macau," the letter said.

The Malaysian airline would also have been responsible "for the start-up costs of the new low-cost carrier's operations".

Eagle Airways would work "to obtain the government's approval to change the company's name to AirAsia Macau".

Investors Circle

The letter was not "legally binding" because the investment was "subject to approval from AirAsia's board of directors".

Another document from February 24, 2010 also shows there was possibility of "a potential investment by one or more of the principal investment affiliates of Goldman Sachs" in Viva Macau.

The document is signed by managing director Masaaki Matsuzawa. The letter did not reveal further details of the deal.

Business Daily approached Goldman Sachs for comment but had not received a reply last night.

The three other investors have not been identified but the source close to Viva Macau said each was an international firm.

The source said each was "excited" by a possible deal with Viva Macau, even though the airline was financially troubled.

"They all knew they had to act quickly as Viva Macau was growing and there was potential in the [aviation] market in Macau," the source said.

Another document seen by Business Daily shows Morgan Stanley Asia Ltd was ready to underwrite securities that would be launched to close the investment in Viva Macau.

Viva Macau was hit hard by the global financial crisis in 2008 and 2009.

The government's Industrial and Commercial Development Fund granted five loans worth 212 million patacas (US$26.6 million).

The government has sought to recoup the loans but its latest effort, last month's auction of shares in Viva Macau, was unsuccessful.

The loans were "small" compared to the potential investment that was discussed, the source said.

"The administration was aware of the progress of the loans. They did not want Viva Macau to succeed and grow," the person added.

Maria Cristina Freitas Gomes da Silva, the government representative on Air Macau's board, said at a Court of Second Instance session last year that she was not aware of any potential deal between AirAsia and Viva Macau.

She was aware the airline was "trying to find solutions" to solve its economic troubles, namely by asking for another government loan.

Compensation Fight

The source said the airline "was experiencing its best period" in 2010 before March 26 when it was unable to settle jet fuel bills with supplier Nam Kwong Group Co Ltd.

Viva Macau has claimed it did not owe money to Nam Kwong and stressed that the supplier did not come forward as one of the airline's creditors.

The company believes the Civil Aviation Authority of Macau told Air Macau to revoke Viva Macau's sub-concession thanks to "a decision" from Mr Lau that was an illegal administrative act.

Civil Aviation Authority president Simon Chan Weng Hong told a press conference on March 28, 2010: "Today, the government has made a decision to cancel or instruct Air Macau to terminate the sub-concession contract."

A letter sent by the aviation authority to Air Macau that day said that "according to today's decision of the Secretary for Public Works and Transport...  Air Macau must terminate immediately the sub-concession contract with Viva Macau".

Air Macau sent a letter to the troubled airline the same day that said it was "instructed to terminate with immediate effect the sub-concession contract".

The Court of Second Instance ruled in January that Mr Lau's decision was merely "an opinion" with no legally binding effect.

However, it noted that "within a certain culture or mentality the boss' dream is law".

Viva Macau has appealed to the top court, arguing that Air Macau pretended it was ending its sub-concession on commercial grounds but was instead "following government orders".

The carrier's legal moves are ultimately aimed at gaining compensation worth "hundreds of millions of U.S. dollars", the source told Business Daily.

Viva Macau has also filed a civil suit against Air Macau.