Grounding, thy name is NAC

Nepal Airlines Corporation (NAC) is facing prolonged grounding of its aircraft while its loan burden continues to escalate.

NAC has obtained loans at a 10 percent interest rate to finance the acquisition of two Airbus A320 and two Airbus A330 aircraft. The ratio of the national flag carrier’s total loans to equity currently stands at 11.17. NAC has been operating flights to 11 international destinations, including New Delhi, Mumbai, Bangalore, Bangkok, Hong Kong, Qatar, Malaysia, Tokyo, and Dubai, using these four aircraft.

The national flag carrier’s long-term loans have exceeded Rs 47bn. This means that, with an annual allocation of Rs 5bn for loan repayments, it would take NAC a decade to clear its debt. However, given its financial situation, it is likely that the debt will continue to accumulate. In the fiscal year 2022/23, NAC’s revenue was Rs 16bn, while its operating expenses amounted to Rs 18bn.

One of the main reasons for this financial struggle is the prolonged grounding of its aircraft. NAC’s aircraft were grounded 21 times between February and September. Of these, Airbus A320 aircraft were grounded 15 times, while Airbus A330 aircraft couldn’t be airborne six times.

Deputy Spokesperson of the Civil Aviation Authority of Nepal (CAAN), Gyanendra Bhul, stated that minor technical problems causing short groundings are not always reported to CAAN. “The reasons for grounding vary. Both narrowbody and widebody aircraft are frequently grounded due to technical and managerial weaknesses,” he added.

Last year, an Airbus A320 with callsign 9N-AKW remained grounded in Doha for 45 days and in Kathmandu airport for 52, 27, and 21 days, according to a source at the NAC. The inability to procure an engine is cited as the reason for these extended groundings. Occasional minor problems every few months are acceptable, but NAC is experiencing repeated and frequent aircraft groundings. According to NAC, its aircraft missed nearly 50 percent of scheduled flights between mid-May and mid-June.

Revenue loss

In the two-month period between mid-April and mid-June, NAC generated revenue of Rs 2.19bn from its four aircraft. During this time, NAC was only able to operate approximately half of its scheduled flights, according to NAC’s in-house publication, ‘Shwet Bhairab’.

NAC estimates that each aircraft generates an average daily revenue of Rs 10m. This means NAC incurs a minimum loss of Rs 10m when an aircraft remains grounded for a day. In addition to the loss of revenue from ticket sales, NAC also has to pay parking fees to airport operators. If a new engine is leased as a replacement, the losses escalate. When all these expenses are factored in, the average daily loss for each day an aircraft is grounded comes to Rs 15m. According to an engineer of the NAC, aircraft are becoming grounded due to negligence and ill-intentions of the NAC management. “Instead of promptly addressing issues, they often seek kickbacks and commissions, resulting in prolonged grounding,” he added.

Long-term agreement with erring firm

NAC has signed a six-year agreement with Israel Aerospace Industries (IAI) for engine overhaul and engine leasing for Airbus A320 aircraft. The four-year agreement signed in August of the previous year includes a clause allowing for an additional two-year extension. IAI took 18 months to repair an Airbus A320 aircraft with call sign 9N-AIX. Although the estimated cost was Rs 360m, NAC paid the company Rs 430m without proper invoicing.

The Israeli firm also took seven months to repair the engine of the aircraft with call sign 9N-AKW, which malfunctioned in Doha, Qatar. Engine repairs should typically take around three months. NAC’s regulations also state that engines should be repaired within 90 days. The firm consistently failing to meet this timeframe should have been blacklisted. However, NAC’s decision to enter a long-term agreement with the firm has raised suspicions of irregularities, according to NAC sources. They suggest that engine repairs are intentionally delayed to extend engine leases and secure commissions.

According to the contract with IAI, the Israeli firm should inform NAC management if parts worth more than $65 need to be replaced. However, NAC engineers claim that IAI does not provide prior information before replacing parts. An NAC engineer mentioned that the engine leasing fee amounts to approximately Rs 1.5m per day. According to the engineer, NAC incurred a loss of Rs 5m after IAI installed an engine with the wrong type certification in an aircraft with call sign 9N-AKX. “This resulted in a loss of Rs 2.5m. Another Rs 2.5m will be required to install an engine certified for the Airbus A320,” he added.

Reasons for aircraft groundings

Aircraft manufacturers provide standard operating procedures (SOPs) to operators, specifying the validity of parts and when they should be replaced. Similarly, Technical Manuals (TMs) specify when parts should be sent for maintenance. Some parts need overhauling every three months, regardless of their condition. Certain parts require inspection after every flight. Engineers licensed by CAAN must certify daily inspection (DI) reports. Additionally, the pilot-in-command should inspect the aircraft before each flight and can request re-inspection if any doubts arise.

According to Bhul, aircraft become grounded when standard operating procedures and training manuals are not followed, and necessary spare parts are not available. “The increasing frequency of aircraft becoming grounded is mainly due to a lack of efficient management,” he added. A senior official at the Ministry of Culture, Tourism, and Civil Aviation cited the frequent aircraft groundings as a result of delayed maintenance and repairs, coupled with a failure to follow standard procedures. “To be honest, we don’t have any definitive answers. Therefore, we cannot pinpoint the exact causes of the problem,” he stated.