On Nov 15, 2018, Madan Khar­el, the then newly appoint­ed Executive Chair of the Nepal Airlines Corporation (NAC), held a press conference flanked by his deputies, including Manag­ing Director Sugat Raj Kansakar. The press conference was called to address the White Paper issued by the NAC management on the national flag carrier’s financial health and long-term plans.The media basically carried the pronouncements verbatim. No critical questions were asked and there was no effort to even check the math presented in the event. The message that came out the press conference was clear: The NAC is on the brink of bankruptcy and the government would have to inject cash to bail it out.

The timing of the press confer­ence, which came hot on the heels of reportedly advanced discus­sions with Ethiopian Airlines for a strategic partnership, was also suspect. To be fair, the Tourism Ministry itself has recommended that the government inject Rs 20 billion as part of its plan to restructure the NAC. While the NAC’s financial health isn’t great, it does earn significant revenue from ground handling alone—about Rs 3.5 billion annually, the same as the total annual repay­ments on its four Airbus loans. That is a significant cushion.

The optics of the press con­ference has hurt both the NAC’s attempts to find a strategic part­ner and its branding efforts among customers. Who would want to invest in a company that is about to file for bankruptcy? Even if that was not the intention, that has been the effect. The airlines business, like any other, revolves around managing perceptions. Would passengers want to fly in an airline if its management is openly talking about its potential bankruptcy? Even on a good day, the NAC is known for delaying or cancelling flights, or worse, grounding its fleet.

This week the NAC has told its creditors it cannot service its quarterly installments

An open secret

This week the NAC has told its creditors it cannot service its quarterly installments due for Jan­uary and has asked for an exten­sion. This despite no significant reduction in its total earnings in December-January. Is this another stunt to kill two birds with one stone: force the government to inject cash while deterring any potential strategic partner?

There are plenty of reasons to doubt the NAC management’s willingness to bring in a strategic partner; a new partner means a change in the management philosophy and style. Would the current appointees really give up their lucrative perch? A perch that provides them with all kinds of perks and privi­leges without corresponding expectations and certification of a good performance. Even without bringing in a strategic partner, what plagues the NAC is an open secret: mismanagement.

Two core issues

The national flag carrier’s administrators, most of whom are political appointees, have been unable and unwilling to do what is required of them to make the corporation profitable. There are two core issues: overstaff­ing and mismanagement of the fleet and flight schedules. Even if laying off excessive staff is polit­ically touchy given how union­ized government entities are, the NAC should still make profits just by flying the four new Airbus­es 18 hours each. And there is the additional cushion from the ground handling business. This combined with a strict fleet main­tenance regime would address its perennial image problem by ensuring minimum delays or can­cellations—thus increasing its mar­ket share. The NAC flies in such profitable destinations that there is no reason its flight occupancy should be at 50 percent, other than its image problem of being extremely unreliable.

For both potential partners and customers, the press conference perpetuated that perception, albeit in different ways: for inves­tors, it amplified the risk factors and for customers, it gave them another reason not to fly with the airline. Increasingly, the NAC’s problems appear more like inter­nal sabotage than just corruption and incompetence.