Nepal Airlines Corporation (NAC) stands at a crossroads that will determine whether it survives as a viable carrier or fades into the growing list of failed state-owned airlines. With debts exceeding assets and chronic mismanagement threatening its existence, the airline desperately needs a lifeline. Surprisingly, that lifeline may come from an unexpected source: Pakistan International Airlines' recent privatization success.
Nepal Airlines Corporation, the nation's wholly government-owned flag carrier, presents a troubling financial picture as of late 2025. The airline's outstanding principal loans stand at Rs34.83 billion, but when capitalized interest and penalties are factored in, total liabilities balloon to approximately Rs50 billion. More alarmingly, the airline's debt-to-assets ratio has climbed to 1.09, meaning liabilities now exceed total assets—a clear marker of insolvency risk.
The stakes extend beyond the airline itself. Public savings invested through institutions like the Employees Provident Fund and Citizen Investment Trust (CIT), are now at risk, making NAC's financial health a matter of public concern rather than merely a corporate challenge.
Yet amid this financial turbulence, there are encouraging operational signals. During the first four months of fiscal year 2025/26 (mid-July to mid-November 2025), NAC earned nearly Rs6 billion, primarily from international routes that carried 218,333 passengers. This translates to approximately Rs26,000 in revenue per international passenger—a respectable figure that suggests the airline's core product remains viable when properly managed.
The domestic operations tell a different story, contributing a mere Rs35 million from 5,678 passengers during the same period. However, NAC's domestic network serves a critical social function, connecting remote and hilly regions with limited alternatives, particularly through its DHC-6 Twin Otter STOL (Short Take-off and Landing) aircraft.
The Irony of Nepal's Tourism Boom
Nepal's tourism sector, which should be NAC's greatest asset, recorded 1,158,459 international arrivals in 2025. This represents a remarkable 97% recovery to pre-COVID 2019 levels, demonstrating the enduring appeal of the Himalayas, cultural heritage sites, and adventure tourism. India alone sent 292,438 visitors, making it the largest source market.
A tribute ride in memory of the victims of PIA air crash
The cruel irony is that NAC captures only a fraction of this traffic at Tribhuvan International Airport in Kathmandu, where foreign carriers—including Indian, Middle Eastern, Chinese, and Southeast Asian airlines—dominate the market. The flag carrier that should be Nepal's primary beneficiary of tourism growth instead watches from the sidelines as competitors reap the rewards.
The problems at NAC aren't new, nor are attempts to fix them. Multiple government evaluation teams have proposed reforms over the years, including public-private partnerships, management contracts, and most recently in November 2025, a recommendation to split NAC into three separate entities handling international operations, domestic services, and ancillary businesses.
What unites all these proposals is their lack of implementation. Political interference, bureaucratic inertia, and resistance from various stakeholders have consistently derailed reform efforts. The result is an airline that continues to deteriorate while opportunities slip away.
PIA Bold Move: The Privatization Blueprint for RA
In December 2025, Pakistan International Airlines completed what many observers considered impossible: a successful privatization that attracted serious investment while protecting the airline's operational future.
The transaction saw a 75% controlling stake sold to an Arif Habib-led consortium for Rs135 billion (approximately $482 million), marking Pakistan's largest privatization in nearly two decades. Crucially, this wasn't merely a fire sale driven by fiscal desperation, though the International Monetary Fund had basically given Pakistan an ultimatum: privatize PIA or no $7 billion loan. The IMF was tired of watching Pakistani taxpayer money disappear into airline bailouts year after year—it was undermining the entire economy. But here's the interesting part: this IMF pressure actually made bidders more confident, not less. How? Because investors knew this time the government couldn't chicken out. Past privatization attempts had failed when politicians got cold feet. But with the IMF making it mandatory, bidders knew the deal would actually happen. It removed the biggest risk: political interference killing the sale at the last minute.
What Made PIA's Privatization Work?
The genius of PIA's privatization lay in its structure, which addressed the fundamental challenges that make distressed airline sales difficult:
Comprehensive Debt Restructuring: PIA's legacy liabilities were staggering—estimates ranged from Rs 650 billion to Rs 950 billion, including Rs 690-900 billion in debts, pension obligations, and accumulated losses. Rather than force buyers to assume this crushing burden, the government transferred these legacy liabilities to a holding company (PIAHCL) that would remain state-owned. The entity being sold retained only manageable liabilities of approximately Rs 202 billion, payable over time, creating a cleaner balance sheet with positive net equity ranging from Rs 3.5 to 9 billion post-restructuring.
This approach mirrors the successful Air India privatization, where the Indian government absorbed approximately 75% of the carrier's debt to make the acquisition viable for the Tata Group.
The Reinvestment Mandate: Perhaps the most innovative element was the bid structure requiring 92.5% of proceeds (approximately Rs 125 billion) to be reinvested directly into PIA for fleet expansion, route development, and service upgrades. Only 7.5% (around Rs10 billion) would go to the government exchequer as cash.
This transformed the transaction from a government revenue exercise into a genuine recapitalization of the airline. The winning consortium committed to expanding PIA's fleet from 18 aircraft to 38-40 within four years, with a long-term target of 65 aircraft. This reinvestment requirement ensured that buyers weren't simply acquiring assets to strip but were committed to building a viable airline.
Protecting Stakeholders: The structure included important safeguards: the government retained a 25% stake initially (with the buyer holding an option to acquire it at a 12-15% premium), employees were protected from layoffs for one year, and the PIA brand would be retained. These provisions addressed concerns about asset-stripping and mass unemployment that often derail privatizations in developing countries.
Process Transparency: Following prequalification requirements, the sale proceeded through a transparent auction process. The winning bid exceeded PIA's book value significantly, driven by intangible assets like airport slots, route rights, and growth potential in Pakistan's recovering aviation market.
Post-Privatization Outlook
The transaction effectively ended the cycle of taxpayer-funded bailouts that had cost Pakistan approximately $1.7 billion in losses between 2015 and 2024. More importantly, it provided PIA with the capital injection needed for a genuine turnaround, de-risking the asset while attracting local investors despite ongoing controversies surrounding the airline.
The author is an Ex- GM of Nepal Airlines (UK & Ireland) and an avid aviation and travel enthusiast with 40 years of experience in the national and international domain.
