The rotten business inside the national flag-carrier

With more and more foreign tourists visiting Nepal, the Nepal Air- lines Corporation’s desire to grow is obvious. To bring more tourists from across the globe. Yet it is not just about tourists. The national flag-carrier flying into destinations like London and Tokyo, and eventually linking the US and Europe to Nepal with connecting flights, is perhaps the stuff of dreams for every patriotic Nepali. Yet while the NAC management has always dreamt big, the national flag-carrier has also gained notoriety as one of the most corrupt public institutions in the country following the restoration of democracy in 1990. This has crimped its growth.

The NAC, founded in 1958, is in a woeful state, with an aging fleet of 13 aircraft. By contrast, Thai Airways, founded in 1960, flies high with 81 planes to 91 destinations around the world. After the formation of a strong government with over a two-thirds majority, Nepalis were enthused that the NAC was bringing two wide-body Air- bus for $209.6 million to expand its international fleet.

 But no sooner had the first of the two-aircraft landed in Kathmandu that discrepancies started appearing in the NAC’s account of the purchases. It appeared the NAC management created shell companies in tax havens and involved many middlemen to oversee the purchases so that it could pocket hefty kickbacks. It was perhaps aided by other senior government officials. 

There were disputes over ownership. The final bill was bloated by some $9 million

There were disputes over owner- ship. The final bill was bloated by some $9 million. When the parliament questioned Minister for Tourism and Civil Aviation Rabindra Adhikari about the dubious paperwork, he lied that he had not sanctioned payment for the two aircraft.

Later, he accepted that he had sanctioned the payment, but only on advice of the Auditor General. But then the Auditor General said that he had offered the minister no such advice.

The Annapurna Media Network wants to sort out this murky business, not to cripple the growth of our fledgling flag-carrier, as those in the government allege. Our singular goal is to rid this important national organization of corruption, make it more robust, and have it proudly carry our emblem in every part of the world.

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 NAC’s murky trail of purchase of two Airbus aircraft

•  One party gets the tender. Another strikes the deal. Another owns the airplane. Yet another appears as the seller, which in fact is created by the buyer itself.
• Different laws are applied while purchasing two aircraft. The old seller colludes with middlemen. And the combined ‘escalation price’ is an additional $9 million.
• There are many middlemen. We make an advance payment. There are agents, but no investment. Nei­ther is there a bank guarantee nor a letter of credit.

This is the long and short of the irregularities that took place when the Nepal Airlines Corpo­ration (NAC) procured two wide-body Airbus A330. There are specific rules to follow when the government makes even a small purchase. But while procuring two aircraft costing a whopping Rs 25 billion, there has been extreme negligence.

NAC Finance By-rule 2065, Guideline 236 (1) stipulates that a new aircraft has to be purchased directly from the manufacturer. To circumvent the rule, the NAC said it would purchase a second-hand aircraft. In its Request for Proposal (RFP) issued on Sept 26, 2016, it curiously asked for an aircraft that had flown for under 1,000 hours and that was manufactured after January 2014.

Eleven companies bid for the contract. The lowest bid was by the US company AAR International, Inc, which agreed to provide two new aircraft for $209.6 million. After adding escalation price, over $218 million would be paid. But as AAR didn’t have an aircraft, it brought in German Aviation Capital and Hi Fly Airways as partners.

While signing the ‘purchase deal’ on April 7, 2017, the two sides agreed to make Hi Fly X Ireland the ‘special purpose company’.

The first agreement was signed with AAR Corp on Jan 27, 2017. After 26 days, on Feb 21, ‘Hi Fly X’ was set up at the initiative of the NAC to purchase the aircraft. This is revealed in the NAC executive committee secretariat’s internal memo dated June 13, 2017.

It says, “The fact that the aircraft will be built by Airbus and trans­actions will have to be made with three companies from separate countries will invite practical and legal complications. Therefore, with mutual agreement between the NAC and the consortium, we have decided to form a special pur­pose company Hi Fly X Ireland only for this purchase, in accordance with European laws.”

 

Dubious ownership

The statement issued by Airbus on June 28, 2018 is still on its web­site. “Nepal Airlines has taken deliv­ery of the first of two A330s, which it will lease from Portuguese lessor Hi Fly,” it says. That was when the NAC was given the first wide-body aircraft. The statement clearly says that the aircraft will be taken by the NAC on lease from the Portuguese lessor ‘Hi Fly’.

Hi Fly Airlines also identifies itself as a lessor company. Its pro­file says: “Hi Fly is a leading wide­body aircraft wet lease specialist operating worldwide. It is a go-to organization for airlines when they need additional capacity to cover their short/medium term or sea­sonal needs.”

Hi Fly claims ownership of both the aircraft. Under “Our air­craft” on its website, it had list­ed A330-243 with Manufacturers Serial Number 1872 and 1878, the two aircraft it supposedly sold to NAC. A few days ago when our sister publication Annapurna Post published related news, the company removed both serial numbers from its website.

The NAC has obtained certificates of ownership for both the aircraft from the Civil Aviation Authority of Nepal. It has also paid customs worth almost Rs 250 million. It claims ownership of the aircraft on that basis. But experts question the veracity of the claim.

In response, the NAC has pre­sented the bill of sale issued by Hi Fly X Ireland, the special purpose company set up by the consortium in which the NAC is a partner. The aircraft are manufactured under the name of Hi Fly Airlines, where­as we have been told we bought them from Hi Fly X Ireland. These are two different companies. There is no record of a name change. “What would’ve been more believable is if Hi Fly Airlines had issued the bill of sale. Hi Fly X has no aircraft under its name. How could a company that has no aircraft have sold us one?” asks a high level NAC official.

The aircraft purchase agreement between the NAC and Hi Fly X had a provision of including the signa­tures of all three companies in the consortium in the bill of sale. Page 39 of the agreement had a sample of the bill of sale in which the logos of all three companies were stamped. But the bill of sale that came with the aircraft is signed only by Hi Fly X, a company that no longer exists. In case legal complexities arise, all the companies in the consortium have a handy way out.

 

 The aircraft are manufactured under the name of ‘Hi Fly’ Airlines, whereas we have been told we bought them from ‘Hi Fly X’ Ireland 

 

Lying minister

After Annapurna Post relentlessly published news about it, the parlia­mentary public accounts and inter­national relations committees had launched separate investigations into the case. The Public Accounts Committee (PAC) set up a sub-com­mittee, whose report absolved Home Secretary Prem Bahadur Rai and Tourism Minister Rabindra Adhikari of wrongdoing, but concluded that corruption in the case amounted to a whopping Rs 4 billion.

Adhikari made a statement in par­liament, claiming that no payment was made in the wide-body purchase deal since he became minister. But the NAC has refuted his claim, saying that it made two payments of Rs 8 bil­lion each with the ministry’s approv­al after Adhikari assumed office.

When asked to clarify, Adhikari lied again. The second time around, he said that the payments were made on advice of Auditor General Tan­ka Mani Sharma. Adhikari’s lie was exposed when Sharma told the PAC that he had neither met nor spoken to Adhikari.

Rai was Secretary at the Tourism Ministry when the decision on the wide-body purchase was made. At that time, the tourism secretary automatically held the post of the chairman of the NAC executive com­mittee. Coincidentally, Rai then was also the chairman of the executive committee of the Employees Provi­dent Fund. The fund approved Rs 12 billion-loan to the NAC at his insis­tence, even though the deal had been deemed risky. Deep Basnyat, the then chief of CIAA, the anti-cor­ruption watchdog, had also exerted pressure to see the deal through.

AAR had struck a deal to send an aircraft with the maximum takeoff weight (MTOW) of 242 tons. But in came aircraft with an MTOW of 230 tons. AAR’s Dipak Sharma wrote a letter to NAC’s managing director Sugat Ratna Kansakar clarifying, “An aircraft with an MTOW of 230 tons is good enough for Nepal.”

But although the weight came down, the price didn’t. As a result, the country had to bear a loss of over Rs 1 billion. But despite such collosal losses across the board, powerful authorities remain mum.

Akhanda Bhandari is the editor of Annapurna Post daily.