When an organization lacks a clear business plan, does not properly study market before starting a new project and doesn’t consider economic viability of business plan, such organizations are bound to fail. This is common wisdom for any business firms—be it state-owned or private. Sadly, this conventional wisdom seems to have lost among mandarins of Nepal Airlines Corporations, Ministry of Culture, Tourism and Civil Aviation and related government bodies. The result is there for all of us to see. The NAC, country’s national flag carrier, has suffered a loss amounting to Rs 491.8 million within one and half months of operation of new Airbus A330. It is now urging the government for bail out. We fear that this will go down as the case of debt trap resulted in by inability of NAC officials to properly manage aircraft operations.
No doubt, Nepal’s oldest airline company had fallen short of aircrafts. And it needed more aircrafts to operate flights within and outside the country. So NAC purchased A330 and started commercial flights from August 1. But it has met with financial challenges. While NAC earned Rs 264.8 million for the airline around Rs 756.6 million has been spent for maintenance and other purposes. NAC borrowed Rs 25 billion from Employees Provident Fund (EPF) and the Citizens Investment Trust (CIT) to finance the purchase of two planes. Now its debt/equity (long term loan/ total capital) ratio is 39.82 along with the total debt of Rs 32.87 billion incurred in aircraft purchase and maintenance. Worse, it has been paying Rs 3.66 billion annually as interest of its long-term debt and Rs 180 million on short-term debt. It is obvious that NAC’s poor management has led to this situation. Not only has it failed to make most out of wide-body aircraft but it has also failed to operate all of its aircrafts—out of 14 aircrafts, only eight are in operation. Six remain grounded, three of them since August 2012.
The NAC must not be the story of loss and inefficient management. We have the example of almost bankrupt public institution getting back to its feet under efficient leadership. Nepal Electricity Authority, which was in debt until few years back, is well on profit—thanks mainly to the efficient management of Kul Man Singh Ghising. NAC’s Managing Director Sugat Ratna Kansakar could have enhanced the standing of national carrier. The NAC needs to review its mode of doing business. The state cannot afford to pour in money in the institution that fails to recover debt. NAC management team should come up with a convincing proposal to revive the public utility. It would be extremely unfortunate if tax payer money is mishandled in the name of operation and management of aircrafts. The NAC management, tourism ministry and, office of the prime minister (if necessary), should investigate what actually led NAC to this loss. Reputation of national flag carrier is at stake.