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A committee chaired by former Governor Dipendra Bahadur Chhetri suggested three months ago that Nepal Airlines Corporation (NAC) sell its shares in Soaltee Hotel Ltd to procure new aircraft.

However, the NAC management couldn’t reach a decision on whether to sell its shares in Soaltee Hotel to procure aircraft. As a result, it formed another committee. The new study committee, led by former Captain KB Limbu, suggested that NAC sell its shares in Soaltee Hotel only as a last resort measure.

NAC is in a difficult situation of having to sell its property to buy aircraft. It has called for bids for the procurement of small aircraft for STOL operation and leased two narrow-body aircraft for its international flights. However, NAC doesn’t have resources to make the procurement or take the aircraft on lease. Nor has it found lenders to finance aircraft procurement. The national flag carrier, which is seeing its market share in the domestic and international markets dwindle gradually, has a loan liability of over Rs 48bn.

While its existing aircraft are not operating to full capacity, it has also not found any takers for the Chinese aircraft that it has been trying to get rid off. Experts say NAC could go bankrupt at any time if the situation persists any longer.

What’s in Limbu’s report?

NAC owns 10,333,699 units of shares in Soaltee Hotel Ltd. The market value of shares is worth around Rs 4.6bn. The NAC management is planning to buy new aircraft by selling these shares. However, the Limbu-led government has prescribed share sale to finance aircraft procurement as the third option to finance aircraft procurement.

The committee has said that NAC should first explore the possibility of taking concessional loans from financial institutions. Second, it has suggested that the management request the government to make additional equity investments. The third alternative prescribed by the committee is mobilizing internal resources to procure aircraft. The committee has said that the management could sell NAC’s shares in Soaltee Hotel Ltd if it has no other alternatives.

Limbu said the committee hasn’t encouraged the NAC management to sell its shares in Soaltee Hotel. “Since the share prices are increasing, NAC stands to make more profits from the shares,” Limbu said.

NAC is getting other benefits from the hotel as a shareholder. It is getting special discounts on room tariffs and airline catering. “NAC could get these discounts as long as it has shares in Soaltee Hotel,” he added.

The government holds 51 percent equity in NAC against the investment of Rs 320m. The committee has suggested that the government increase its equity investment in NAC.

According to the audit report of 2018/19, NAC has total assets of Rs 54bn while its liability is worth around Rs 47bn.

The Limbu-led committee is the fourth study panel that NAC has formed. The previous three panels have suggested that NAC management put grounded aircraft into operation and optimize the operation of all aircraft, according to Limbu.

NAC is paying an average interest of 10 percent on its accumulated loans of Rs 48.03bn. Study panels have suggested that NAC explore the possibility of getting concessional loans to gradually reduce its loan liabilities.

NAC has a long-term loan of Rs 47bn that it took to finance procurement of four jets for international flights. It would take NAC at least 10 years to clear this loan if it sets aside Rs 5bn annually for loan repayment. NAC’s total revenue was Rs 16bn in 2021/22, while its total operating expenses were more or less similar. NAC has been failing to service its long-term loans taken to finance procurement for two narrow-body and two wide-body jets.

Plan to wet-lease narrow-body jets

NAC has launched a global tender to take two narrow-body jets on wet lease. However, the Limbu-led committee has suggested that NAC should rather procure aircraft on installments than take aircraft on a wet lease.

In its 10-year (2021-2030) business plan, NAC has set a target of adding aircraft for domestic and international flights by 2022, maintain a 70:30 equity and credit ratio, hire technical staff and construct a commercial building on its land in Sinamangal on BOOT. However, it has just begun the process of procuring and leasing aircraft. Aircraft are being grounded for a long time due to a lack of timely recruitment of technical workforce.

Shrinking market share

Until the mid-1990s, NAC used to fly to 39 domestic destinations. It is currently flying to only 19 destinations. Likewise, NAC was operating flights to 13 international destinations in the mid-1990s; it is now flying to only nine destinations.

NAC has four aircraft for international flights. These aircraft can fly for 56 hours daily. However, they have been flying for only 10-11 hours at present. This speaks volume about the weakness of the incumbent management.

While NAC’s two wide-body aircraft are logging losses, two narrow-body jets are making profit. It has already grounded the Boeing 757 and six small Chinese aircraft—two MA 60 and four Harbin Y12 aircraft. Although the Chinese aircraft have been grounded, NAC is still paying maintenance and parking fees and bank interest rates for these aircraft. According to NAC, it is spending Rs 283.1m for the MA 60s and Rs 197.8m for Y12 aircraft annually. This figure excludes pay and perks of pilots.

Although the domestic aviation market is worth around Rs 20bn, NAC is generating a business of only around Rs 120m.

Grounded aircraft

NAC’s Twin Otter with 9N-ABX call sign has been grounded since 2012. Although NAC has set aside Rs 200m to bring the aircraft into operation, the NAC management is failing to repair it.

It has already been six months since Tourism Minister Sudan Kirati issued a directive to bring the aircraft into operation at the earliest. However, it is still uncertain when the aircraft will be airborne.

NAC mobilized revenue of Rs 2.19bn from its international flights in the months of May and June last year. According to NAC’s official publication ‘Shwet Bhairav’, the aircraft operated at only 50 percent of their capacity in those months. NAC incurs a loss of Rs 10m if its aircraft are grounded for a day. However, NAC hasn’t been able to press all four aircraft into operation all the time.

What next for Chinese planes?

NAC has put five Chinese aircraft—two MA 60s and three Y12s—on sale. However, it hasn’t been able to find buyers for these planes.

NAC procured six Chinese aircraft to increase its share in the domestic market. Of these six aircraft, China provided one MA 60 and one Y12 on grant, while the remaining four were purchased on a government-to-government agreement. China also provided concessional loans for aircraft procurement. NAC still owes about Rs 4bn to the Chinese lenders.

NAC has been stating that the Chinese aircraft are inoperable due to a lack of trained pilots, high training costs for pilots, non-availability of instructor pilots, and high insurance fees, among other factors.

Report Study and Implementation Recommendation Committee under Nepal Rastra Bank (NRB) former governor Deependra Bahadur Kshetry-led Nepal Airlines Corporation Structural Reforms Study Committee has submitted its fourth report.

The Report Study and Implementation Recommendation Committee led by former Captain Kul Bahadur Limbu submitted the report jointly to Minister for Culture, Tourism and Civil Aviation, Sudan Kirati, Secretary Deepak Kafle and Executive Chairperson of Nepal Airlines Corporation, Yubraj Adhikari today.

The report has mainly incorporated four points—making internal audits effective, forming an accounts committee to make decisions of board of directors and NAC's governance effectively, selling shares of Soaltee Hotel to make NAC financially strong and formulating a realistic action plan of NAC.

On the occasion, Minister Kirati directed the NAC Executive Chairperson for effective implementation of the report.

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. 

A wide-body aircraft of Nepal Airlines Corporation (NAC) has been grounded after a technical problem was detected in it. With this, the passengers bound to Doha, Qatar have been stranded.

NAC spokesperson Ramesh Poudel said the flight had to be stopped as a problem occurred with the flight control sensor of the wide-body plane. Technical repair of the grounded aircraft is in progress now. He said the passengers bound to Doha on this flight will be sent to the destination via an alternative flight this evening.

"The passengers of the Doha flight were stopped due to the technical problem in the aircraft last night. Preparations have been made to send the passengers to the destination by another flight at 7: 45 pm today. The passengers have been asked to come to the airport at 4 pm," he said.

Out of the NAC's four planes operating on international routes, a narrow-body plane has been dispatched to Israel for repair. Flights are affected due to frequent technical glitches in the NAC planes.

NAC has two narrow-body and two wide-body aircraft for operating international flights. The 276 passengers bound to Doha from Kathmandu were kept in a hotel for the night.

Nepal Airlines Corporation (NAC) has published a 45-day auction notice to dispose of its five China-made aircraft—two MA-60s and three Harbin Y-12s.

According to Ramesh Poudel, the spokesperson for the NAC, the national flag carrier will hand over the aircraft to parties quoting the higher prices.

NAC grounded these aircraft three years ago. The annual cost of NAC for these aircraft hovers above Rs 200m. One of the aircraft, Y-12, crashed at Nepalgunj Airport. NAC has already received the insured amount for the aircraft.

Earlier, NAC had also published two auction notices to get rid of these aircraft. However, it didn't receive any applications.

NAC inducted the six aircraft into its fleet in 2014 to expand its share in the domestic market. The Chinese government provided one MA-60 and Y-12 as a grant, while it arranged a concessional loan to finance the purchase of three Y-13 and one MA-50 through a government-to-government agreement.

NAC owes nearly Rs 4bn to the Chinese lenders. According to the national flag carrier, it incurred a loss of Rs 2.5bn in five years from operating the aircraft.

NAC was to begin installment payments from Oct 2020. However, the aircraft were grounded from July of the same year.

NAC has cited reasons like a lack of trained pilots, high training costs to produce pilots (which are said to be four times higher compared to other aircraft) and high insurance fees, among others, behind its decision to ground these Chinese aircraft.

House committee to study EU blacklist

The International Relations and Tourism Committee of the House of Representatives has decided to study the decision of the European Union to continue Nepal on its Air Safety List.

A meeting of the committee held on Thursday decided to form a technical sub-committee to study the matter.

Earlier, the committee had sought a comprehensive plan from the Nepal Airlines Corporation (NAC) to address concerns raised by the EU in its safety audit. NAC had submitted its plan in the meeting.

The Civil Aviation Authority of Nepal (CAAN) has also submitted its report, specifying future plans, to the committee.

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.

The government has decided to send an aircraft of Nepal Airlines to rescue Nepalis in Israel.

Nepal Airlines Corporation spokesperson Ramesh Paudel said that preparations are being made to send an aircraft to Israel.

“The Tourism Ministry has directed the Nepal Airlines Corporation to keep an aircraft on standby. We are making preparations for the same,” he said.

According to the Foreign Ministry, the aircraft of the national flag carrier will leave for Israel via Dubai to rescue Nepalis at 11 pm today.

The Foreign Ministry was of the opinion that the rescue was delayed after not getting the route for chartered flight.

Nepali nationals in Israel have been urging the government to rescue them at the earliest following the attacks by Hamas.

On Tuesday, Foreign Minister NP Saud held a telephone conversation with his Israeli counterpart Eli Cohen and urged him for necessary coordination and facilitation to repatriate the bodies of Nepali students killed in the attacks by Hamas in Israel.

In response, the Israeli Foreign Minister expressed his commitment to extend necessary assistance to send the bodies to Nepali students back home.

Ten Nepali students have been killed while 55 from Israeli bunkers and 72 from Lebanon have been shifted to safer places since the war broke out four days ago, Nepali Ambassador to Israel Kanta Rizal said.

Over 350 Nepali people eager to return home have so far registered their names at Nepali Embassy.

Earlier, the International Relations and Tourism Committee had directed the Office of the Prime Minister and Council of Ministers and Foreign Ministry to make arrangements to repatriate the bodies of 10 Nepalis killed in the attack.

The Nepal Airlines Corporation is facing several economic crises due to the severe mismanagement, irregularities, and mismanagement. 

In this context, a report prepared by a committee headed by the former governor of Nepal Rastra Bank, Dipendra Bahadur Chhetri, has come up with a slew of recommendations to improve the national flag carrier. 
The long-term debt of the NAC stands at Rs 47bn. Looking at the current situation, it seems that the corporation will not be debt-free; in fact, it is likely to carry more debt. The report states that if  the NAC continues to operate this way, it will not be able to pay its debt.

According to the report released by the Ministry of Culture, Tourism and Civil Aviation, even if new aircraft are added to its fleet, it will take a long time for the NAC to pay off its loans. To free the corporation from debt and make it profitable, the Chhetri-led committee recommends several solutions, such as converting into a corporate company by collaborating with strategic partners and dividing the company into three entities. 

The committee suggests that once the corporation is turned into a company limited, it can allocate shares up to a maximum of 40 percent to strategic partners. The committee recommends that the Ministry of Finance should hold 26 percent of the total shares and the Ministry of Tourism 25 percent. It also advises allocating shares to organizations and employees. 

The committee has further suggested forming a board of directors with seven members, chaired by the secretary of the Ministry of Culture, Tourism and Civil Aviation. The members include representatives from the airlines, Ministry of Finance, strategic partners, and aviation experts.

As for dividing the company, the committee suggests breaking it into three parts: parent (holding) company, international flight subsidiary company, and domestic flight subsidiary company.
The committee states that the parent company should provide aviation-related professional training, maintenance and repair of aircraft and related equipment, ground service operation, catering arrangements, and technical and other services to the subsidiary companies as needed.

By dividing the role and responsibility, the committee reckons that the management and operation of the airlines will be more streamlined and effective.  

The national flag carrier, Nepal Airlines Corporation (NAC), is set to operate regular flights to Hong Kong and New Delhi, India from the Bhairahawa-based Gautam Buddha International Airport from August 29 onward.

The Corporation has opened ticket booking for Hong Kong and Delhi from Bhairahawa with transit in Kathmandu.

NAC Spokesperson Ramesh Poudel informed that the Corporation has a plan to gradually increase the number of flights as per the market demand and NAC's market management by initiating a weekly flight from Bhairahawa on every Tuesday.

According to the flight schedule, a plane that takes off from Bhairahawa at 8.15 am would land in Kathmandu at 9 am.

Then after, passengers bound to Hong Kong and Delhi are onboard in the respective connecting flights of the NAC.

Arrangements have been made for the passengers to receive boarding passes up to the destination during check-in time and directly get luggage in the destination, the NAC said.

Passengers can book and obtain online tickets after logging onto the website of the NAC.