NAC leasing aircraft instead of optimizing performance of existing fleet

One of the narrow-body aircraft of Nepal Airlines Corporation (NAC) has remained grounded for nearly two months now. NAC has already lost revenue of Rs 600m so far from the aircraft alone. Instead of repairing the aircraft and operating its entire fleet, the focus of NAC management seems to be on other things.

NAC on Tuesday opened a global tender to induct two narrow-body aircraft into its fleet on ACMI (aircraft, maintenance, crew, and insurance) lease for a year. The past leasing history of NAC hasn’t been free from controversy. The airline has become a hotbed of corruption and irregularities. Knowledgeable sources say a big money game is involved in the leasing process this time as well.

The narrow-body aircraft with call sign 9N AKX first developed a problem in one of its engines in the last week of December. The aircraft was sent for repairs to the Israeli company Israel Aerospace Industries (IAI). NAC signed an MRO (maintenance, repair, and overhaul) agreement with the Israeli firm in September last year. Although the aircraft was flown for some time using the other engine, the engine hasn’t been repaired yet.

NAC’s total debt is around Rs 48.03bn. The interest rate on the loan is more than 10 percent. To alleviate this debt burden, NAC should have increased business and found ways to seek cheaper loans. However, sources say officials are bent on destroying NAC by making personal gains on the leasing agreement yet again.

NAC mobilized revenue of Rs 2.19bn from international flights in the last two months of the fiscal year 2022/23. During the period, NAC operated only half of the scheduled flights, according to its in-house publication ‘Shwet Bhairav’.

Minister for Sudan Kirati, a few days ago, wrote a post on his social media page stating that NAC was inducting two aircraft on lease for international flight operations. NAC is using wide-body aircraft for flights to Tokyo, and it is preparing to launch scheduled flights to Sydney and Korea as well, according to a statement issued on Tuesday. Since both wide-body aircraft will be deployed on long-haul flights, NAC has said that the two narrow-body aircraft would be insufficient to operate flights to other routes. NAC has said that it would add flights to New Delhi, Dubai, Doha, and Malaysia, among other sectors, and also start scheduled flights from Bhairahawa after inducting new aircraft.

NAC Spokesperson Ramesh Poudel said the new aircraft are being brought as its fleet is insufficient for international flight expansion. “Since NAC is adding scheduled flights to Sydney, there is a need to add aircraft to serve existing routes,” he added.

The latest study committee commissioned by the government stated that NAC’s neglect towards market management had weakened its presence in the flight services and was therefore negatively affecting its brand. The committee led by former Nepal Rastra Bank Governor Dipendra Bahadur Kshtry suggested that the market presence of NAC should be made effective as it appears to lack a clear strategy regarding market management. For this, it suggested expanding its fleet.

A former general manager of NAC said that although it is necessary to buy aircraft for market expansion, bringing aircraft on wet lease could be fatal for NAC. “Large companies lease aircraft only for a period of one or two months in their peak season, or to ensure that their flight schedule is not affected when the aircraft go on scheduled maintenance,” the former general manager said. “There are several other hidden costs in the ACMI leasing agreement which makes it very expensive.”

He said NAC shouldn’t overlook past precedents while leasing aircraft. He also added that the tendency of leasing aircraft on ACMI for a long time would affect the professional development of manpower and that NAC could face a shortage of skilled workforce in the future.

Falling market share

NAC’s market share in Nepal’s international flights is around 16 percent. In 2020, it enjoyed a market share of 25 percent.

NAC has two wide-body and two narrow-body aircraft for international flights. It currently flies to 11 international destinations including New Delhi, Mumbai, Bangalore, Bangkok, Hong Kong, Doha, Kuala Lumpur, and Dubai.

The national flag carrier procured the four aircraft borrowing Rs 34bn from Citizen Investment Trust and Employees’ Provident Fund. A wide-body aircraft can fly up to 18 hours, while a narrow body can operate for up to 15 hours. However, wide-body aircraft of the NAC are operational for only 8-10 hours a day, while narrow-body aircraft are flying for an average of 12 hours a day.

These aircraft are grounded very often largely due to a lack of technical and managerial weaknesses of NAC. The aircraft have been grounded 21 times between February and September last year due to delay in maintenance, technical issues, and managerial weaknesses.

Last year, NAC’s narrow-body with call sign 9N-AKW remained grounded in Doha for 45 days. It also remained grounded for 52 days, 27 days, and 21 days in Kathmandu. The aircraft remained grounded for such large spells due to a delay in arranging spare engines. The narrow-body with call sign 9N AKX has been grounded since the last week of December. It was sent to Israel on Jan 9 for engine repairs.

Leasing scams of the past 

In Sept 2000, NAC signed a leasing agreement with Australian company Lauda Air to induct a Boeing 767 aircraft into its fleet. The decision was taken after signing a leasing agreement with China South West for a Boeing 757 aircraft even though NAC was not able to maximize the operation of its two Boeing 757. The Lauda Air leasing agreement cost NAC a loss of Rs 2bn. Then Prime Minister Girija Prasad Koirala and then tourism minister Tarini Dutta Chataut, among others, were allegedly involved in the scandal. The Commission for the Investigation of Abuse of Authorities filed a corruption case against seven including Chataut. 

In 1999, NAC signed an agreement to lease a Boeing 757 from the Chinese company China Southwest Airlines without going for global bidding. NAC suffered a loss of Rs 220m from the agreement.

In 1998, NAC signed an agreement to take a Boeing 757 aircraft on lease from a company named Chase Air which had neither an office nor an aircraft. NAC sent advance money to the company but the aircraft didn’t land in Kathmandu. NAC suffered a loss of $9m in the deal.