NAC grapples with mounting debt of Rs 51.26 billion

Published On: September 3, 2024 11:25 AM NPT By: Dilip Paudel

KATHMANDU, Sept 3: Nepal Airlines Corporation (NAC), the state-owned airline, is grappling with a mounting debt of Rs 51.26 billion due to its inability to expand its business. While private sector airlines are operating at a profit, the NAC's debt burden has reached Rs 51.26 billion.

The debt of NAC has exceeded Rs 50 billion due to several reasons, including the non-operation of aircraft purchased from China, frequent grounding of planes, and weak managerial leadership. As a result, the corporation has been unable to repay the loans it took from the Citizens Investment Trust (CIT) and Employee Provident Fund (EPF), leading to a buildup of both principal and interest.

NAC Spokesperson Ramesh Paudel stated that the debt burden has increased because flights were halted during the Covid-19 pandemic and planes were frequently grounded. "The debt has been increasing because we have been unable to pay the full installments," Paudel said. "The amount has also risen due to penalties on the interest," Paudel added.

The NAC last paid Rs 439.55 million as an installment for its debt obligations to the EPF and the CIT. The NAC had taken loans from these two institutions to purchase two narrow-body and two wide-body aircraft for international flights.

The NAC sought to obtain a soft loan (concessional loan) of about Rs 125 billion from international organizations to manage internal debt and purchase new aircraft, but it has been unable to manage the debt effectively.

When taking loans domestically proved to be expensive due to high-interest rates, the NAC sought a soft loan of Rs 135 billion from international organizations for the first time. However, foreign entities showed no interest in providing loans to the NAC.

The NAC initially called on international financial institutions to provide a soft loan of about USD 1,018 million for financial management and the purchase of new aircraft. However, after receiving no applications, they made the call again. It has been reported that the corporation is currently paying an interest rate of over 10 percent on its existing loans, and is now attempting to secure concessional loans with an interest rate of less than 5 percent.

The NAC has planned to take loans totaling Rs 135 billion: Rs 55 billion for debt management, Rs 75 billion for purchasing new aircraft, and Rs 5 billion for constructing a hangar. Although the corporation has a plan to purchase three Airbus aircraft for international flights, it has not been successful in securing the required funding.

Out of the four aircraft used by the NAC for international flights, only two are currently in operation. Manoj Kumar Shah, Deputy Director of the Engineering and Maintenance Department at NAC, confirmed that only two aircraft are operational for international flights. "The Sagarmatha and Lumbini narrow-body aircraft are in operation," he said.

Two of the NAC's aircraft, the A320 and A330, have been sent to Israel and Italy, respectively, for maintenance and checks. One aircraft will return on September 7, while the other is expected to return only next month. This situation has resulted in a significant loss for the NAC.

The burden of debt on the NAC has increased because aircraft making regular earnings are not in operation. Internally, only one Twin Otter aircraft is currently in service. By not operating Twin Otter aircraft regularly, the corporation has reduced its domestic market share to a minimal 0.3 percent, leading to allegations that its reputation has deteriorated.

The Ministry of Culture, Tourism, and Civil Aviation (MoCTCA) has stated that the corporation has incurred irreparable financial losses due to the grounding of aircraft, despite the need to implement strategic plans and schedules with proper preparation.

During the tenure of former Prime Minister Pushpa Kamal Dahal, six Chinese aircraft were purchased, but none of them are currently in operation. One of these aircraft was involved in an accident in Nepalgunj, while the remaining five have been left unused. The decline of the corporation began after these aircraft from China were grounded. These Chinese aircraft have not been in operation since 2018 and are currently parked at the Tribhuvan International Airport.

The NAC has faced continuous losses due to its failure to expand its business, raising questions about the effectiveness of its Executive Chairman Ubaraj Adhikari. The MoCTCA has sought clarification from Adhikari as the NAC has failed to operate profitably and has continued to incur losses. The MoCTCA's conclusion is that Adhikari is responsible for the creation of additional financial liabilities due to the failure to make timely payments of principal and interest.

The MoCTCA has started discussions about appointing a new Managing Director, concluding that the NAC cannot be effectively managed under Adhikari's leadership. According to sources, Minister for Culture, Tourism, and Civil Aviation Badri Pandey has also discussed this matter with Prime Minister KP Sharma Oli.

A senior official from the MoCTCA stated that if Adhikari is removed and reinstated by the court, the ministry plans to reduce his authority and prepare to appoint a new Managing Director. "Under Adhikari's leadership, the burden of debt on the corporation has increased," the official said. "Due to Adhikari, the NAC has repeatedly suffered damage and incurred losses."

Members of parliament's International Relations and Tourism Committee have suggested exploring alternatives, stating that the current leadership is unable to effectively manage the NAC. The MoCTCA has raised a dozen questions about Adhikari's performance. The MoCTCA accuses him of failing to ensure that there are alternative arrangements and service continuity while sending the NAC's aircraft for maintenance and checks, leading to service disruptions.

Questions have also been raised about sending both wide-body aircraft for checks at the same time, which leads to service disruptions. Additionally, the NAC has faced fines in various countries for not operating timely flights. Accusations against Adhikari include the failure to efficiently manage and safeguard the NAC's assets, the increase in financial expenditures due to assigning staff without obtaining commercial flights in Sydney, Australia, and the overall lack of effective management.

On October 28, 2021, the then tourism minister Prem Ale appointed Adhikari as the NAC’s executive chairman. A probe committee chaired by the then tourism secretary Maheshwar Neupane concluded that Adhikari was unable to manage the NAC effectively, and the report suggested that it was not appropriate to keep him in the position. After the government removed Adhikari, he went to the Supreme Court and, on July 7, 2022, obtained a short-term interim order to return to the NAC.