Nearly 66 percent of airline companies licensed by the government in over seven decades of Nepal’s aviation history have failed.
Experts say financial risks are the major reasons behind the high rate of airline failures in Nepal.
Nepal Airlines Corporation started operations as the national flag carrier on 1 July 1958. Many private companies came up in the Nepali sky after the government adopted a liberal market policy in the 1990s. But many of them couldn’t stay airborne for a long time. According to the Civil Aviation Authority of Nepal (CAAN), 21 airline companies are currently in operation. An airline must have at least three aircraft to start commercial flights in Nepal.
Air service is considered an attractive business. CAAN officials say that having more attraction and competition in this business is good. However, they add that airline companies are shutting down as their financial situation weakens. Gyanendra Bhul, information officer of CAAN, says many airline companies are shutting down due to air accidents and a lack of financial stability. “People find the airline business attractive and pour their money in, but after one or two accidents, they don’t have financial backup to sustain their business. As a result, the businesses fold,” he added.
Some say some airline businesses are failing due to a lack of market study and necessary preparation. Aviation expert Achyut Raj Pahadi says sufficient resources and a qualified workforce are needed for airlines to succeed. “Many companies have shut down because the promoters didn't have good financial backing. Even companies doing well have failed. This is a failure in financial management,” Pahadi added.
Former Senior Captain KB Limbu said many people are starting a business feeling that they would earn good money in a short time. “The aviation sector is not a business; it's an industry in itself. One needs to have strong financial backing, as well as a qualified workforce and necessary parts in stock,” he said, adding: “A lack of long-term planning and a business plan is one of the reasons behind the increasing failure of airline companies in Nepal.”
Former General Manager of Nepal Airlines Corporation, Dim Prasad Poudel, said a lack of a business plan is one of the reasons why Nepali airline companies aren’t sustainable. “Airline companies are failing also because of the involvement of inexperienced people in this business, a decrease in tourist footfall, and inexperienced management,” he added.
He said the government should conduct a study on the number of passengers, how many aircraft can be added in the next five years, how many companies will be sustainable, etc. “We have the tendency of providing a license whenever people apply,” he added.
Former Tourism Secretary Kedar Bahadur Adhikari said the ministry evaluates the business plan, financial statement, type of aircraft, and other technical aspects before issuing a license.
Experts, however, say the ministry doesn’t study whether the company will be viable and how far it can go financially, or whether it can bear the financial risk.
“It is difficult for the companies to survive due to the short runways in the airports. Big aircraft can’t land in many remote airstrips. As a result, they have to operate small aircraft with fewer seats. It hits their profitability,” Adhikari said. Aviation expert Pahadi said CAAN should pay attention as airline companies are failing because of financial risks. “Only the companies that have resources to finance operations for at least a year should be awarded a license,” he added. However, Bhul said CAAN doesn't have any information about the financial aspects of the company. “Our duty is to look after safety and technical aspects only,” he added.
According to CAAN, 21 airline companies have 104 aircraft, including helicopters at present. However, out of 13 aircraft of Nepal Airlines, only six - two Twin Otters, two Airbus A320s, and two Airbus A330s—are in operation. Private carrier Buddha Air has the highest number of aircraft in Nepal. Buddha is a dominant player in the domestic market. Guna Airlines has been grounded by CAAN.
Airline licensing process
Companies interested in starting an aviation business will have to submit their business plan as well as a technical and administration report to the ministry for a permit. After receiving the application, the ministry forms an evaluation committee led by a joint secretary. After evaluating the documents, the committee provides a provisional permit. Then the company will have to apply to the CAAN for an Air Operator Certificate (AOC).
The application process includes five stages - pre-application phase, formal application phase, document evaluation phase, demonstration and inspection phase, and certification phase.
