KATHMANDU, Oct 6: The government has initiated preparations to acquire three aircraft for the Nepal Airlines Corporation (NAC) in an effort to revitalize the financially struggling national flag-carrier. Prime Minister Pushpa Kamal Dahal has requested a proposal from the Ministry of Culture, Tourism, and Civil Aviation to proceed with the purchase of the aircraft, which was subsequently submitted to the Cabinet a week ago
Ubaraj Adhikari, the executive chairman of NAC, advocated the purchase of three planes before the Prime Minister's visits to the United States and China. In response to this proposal, the Prime Minister Dahal directed Tourism Minister Sudan Kirati to draft a proposal for the aircraft purchase. Accordingly, the ministry submitted the proposal to the Office of the Prime Minister and the Council of Ministers.
The government's decision to purchase additional aircraft comes as the NAC faces challenges in servicing its loans for previously acquired Airbus 320 and wide-body A330 planes, with delayed loan installments and interest payments. The ministry formally discussed the aircraft procurement matter two weeks ago, and the Prime Minister's Office solicited opinions on the matter.
The ministry opined that the NAC could proceed with the purchase under the prevailing Nepali laws. A senior ministry official stated, "We were asked for an opinion on the issue of aircraft purchase. After discussions within the ministry, we provided an opinion that the purchase could be made through the NAC."
Around three weeks ago, the NAC's executive chairman briefed Prime Minister Dahal and Tourism Minister Kirati on the NAC's current financial situation and obligations, highlighting the need for three additional aircraft. It is reported that the Prime Minister instructed the minister to submit the purchase proposal, indicating the government's willingness to acquire the aircraft.
Tourism minister directs NAC to expedite process to purchase ai...
A report from the Structural and Management Study and Recommendation Committee of the NAC in 2080 BS, chaired by former Nepal Rastra Bank governor Dipendra Bahadur Chhetri, recommended selling shares of Soaltee Hotel to fund the aircraft purchase. The NAC initially held 600,000 shares in Soaltee Hotel Limited, which subsequently increased to 10.33 million shares.
The report noted, "The market price of each of the said shares on September 5 appears to be Rs. 443. Based on this market value, the total market value of the shares has reached Rs 4.57 billion. Selling these shares could enable the corporation to acquire a new aircraft. Attention to recovery will also help improve cash flow for the purchase of aircraft. To ensure profitability, the corporation should consider costs, competitor's services, and add a reasonable premium while determining sales rates."
The Employees Provident Fund and the Citizen Investment Trust have consistently urged the Ministry of Finance to cancel the loans extended to the NAC, expressing concerns about the potential impact on the savings of millions of employees. The NAC reported an operating profit of only Rs 1 billion in the fiscal year 2021/22, excluding loan repayments and installments.
Despite generating revenue, the NAC still faced a loss of Rs 4.79 billion after factoring in loans, installments, and other expenses. It's worth noting that the organization's long-term losses are substantial, with a debt of about Rs 47 billion. This debt discrepancy arose from the differing liability payment amounts between the two organizations that borrowed the funds, highlighting the need for reconciliation.
As per the latest statement, only 2.6 percent of the loan has been repaid, and the NAC's financial ratios, including the cash ratio, current ratio, and quick ratio, have consistently remained below one for the past five years. Paying over 9.5 percent in interest, a significant portion of the corporation's earnings from operations goes toward servicing loan interest, contributing to the low financial ratios.
The recently submitted report says, "Even if the corporation were to achieve a cash profit of Rs 5 billion a year, it would take approximately 10 years to repay the long-term debt."
Currently, the NAC operates international flights with just four aircraft, serving destinations such as Japan's Narita, Saudi Arabia's Riyadh, India's Delhi, Mumbai, and Bangalore, as well as locations in Malaysia, Qatar, Dubai, Bangkok, and Hong Kong. The prime minister was briefed on the need for the NAC to immediately acquire two ATR72 aircraft for domestic routes, including flights between Kathmandu, Biratnagar, Bhadrapur, Nepalgunj, Bhairahawa, and Pokhara.
Out of the NAC's fleet of 13 aircraft, only six are currently in operation, leaving seven grounded. Among the seven grounded aircraft, one is an older TwinOtter, while the rest are narrow-body aircraft. The situation has raised questions about the necessity of acquiring new aircraft for international flights while the corporation struggles to maintain its domestic operations and service its existing debt obligations.
The Chinese-made narrow-body aircraft, manufactured by Harbin Aircraft Group, have been grounded for three years due to ongoing financial losses. Among the six aircraft parked, two were donated by the Chinese government, while the remaining four were acquired through loans from the Chinese Exim Bank. Unfortunately, the corporation found itself in debt following the cessation of operations of these aircraft.
A recent report submitted to the government recommended that all civil servants be required to utilize the corporation's aircraft for domestic flights. An audit by the Office of the Auditor General revealed that the NAC's physical assets were not adequately protected and documented. It was also noted that there was an excess of items in stock. Furthermore, the report pointed out that wide-body operations were also experiencing financial losses.
