Nepal Airlines has new planes, but no new plans

The woes that plague state-owned Nepal Airlines Corporation (NAC) are not new: mismanagement, political interference, incompetence and inability to compete internationally. Instead of improvements after the addition of four new jets in the past two years, however, the crisis has worsened.

The airline’s two Airbus 330s and two 320s added a whopping debt burden of nearly Rs30 billion, forcing the carrier to look for  government bailout. Most of its domestic fleet is grounded, the airline has not been able to sell off its two Boeing 757s, and air route permits to Incheon, Kansai and Guangzhou have all been delayed.

Last month, Prime Minister KP Oli warned management: “If the airline is not run properly, the government can step in. We cannot keep pouring Rs37 billion into a bottomless pit every year.”

Oli appointed loyalist Madan Kharel as executive director of NAC in October last year, but there was confusion over his responsibilities and those of Managing Director Sugat Ratna Kansakar, who later resigned. Kharel promised to make the airline’s domestic fleet airworthy in three months, launch flights to Guangzhou by March, and use the 330s on other long-haul routes.

Nearly a year later none of that has happened. NAC is three months behind on payments of Rs3.39 billion to Citizen Investment Fund and Provident Fund, on loans.

PM Oli summoned Kharel to Baluwatar two weeks ago, asking him to present a plan to take the carrier into profit. But Kharel begged for a subsidy, and Oli was said to be livid, stating that the government would rescue the airline only if it came back with a new business plan.

Kharel went into panic mode. NAC senior management recently spent two days at a retreat in Godavari to come up with a break-even strategy, and Kharel has issued requests for proposals to contract out the operations and engineering departments.

But even the airline’s own employees have doubts. Achyutraj Pahadi, a member of NAC’s operations committee, says staff will not cooperate with outside contractors, and a better option would be to find a strategic partner.

Read also: Keeping Nepal Airlines airworthy, Sharad Ojha

Kharel argues that putting in place a strategic partner would take too long. Indeed, Lufthansa was selected as a strategic partner in 2016 but the Finance Ministry sank the deal. There has been no international interest in a new call for proposals made in December.

Buddhisagar Lamichhane of the Ministry of Tourism and Civil Aviation says a strategic partner is not a panacea: “Bringing in an airline with expertise in the aviation sector would help, but only if the airline was on a sounder financial footing already.”

In his defence, Kharel says he was saddled with huge loans for the new planes: “When I took over, we had new planes but no plans to fly them. Now we are ready to fly new routes, but we need capital injection from the government.”

Kharel has submitted his breakeven plan to the ministry, which includes starting flights to Osaka, Riyadh and Guangzhou and increasing the fleet utilisation. To be fair, it is not entirely the airline management’s fault that long-haul routes have not panned out. Nepal is still on the EU black list, (see box) and some countries are reluctant to allow flights.

This week, airline staff saw a glimmer of hope in Oli’s appointment of Yogesh Bhattarai as Tourism and Civil Aviation Minister (pictured, left). He is seen as a can-do politicians in the mould of his predecessor Rabindra Adhikari who died in a helicopter crash in Taplejung in April.

“My goal is to make Nepal Airlines profitable, I have heard it is mismanaged and will have to study the company. But I want to make it an airline Nepal can be proud of,” Minister Bhattarai told Nepali Times.

NAC has announced discounted promo fares for its thrice-weekly direct flights to Osaka from 29 August, revival of a route Nepal Airlines used to operate. But proposals to fly to Seoul are delayed because the Koreans are insisting on a safety audit.

Read also: Jet closure benefits Nepal Airlines, Sharad Ojha

Amidst much fanfare, China this week announced it was expanding bilateral air services from 70 to 90 flights a week, and adding one more destination to 8 Chinese cities. However, there is no word from the Chinese on Himalayan Airlines’ proposal for direct flights from Kathmandu to Shanghai and Beijing, as well as Nepal Airlines’ plan to connect to Guangzhou.

On the domestic front, only half of NAC’s two Chinese-made MA60s and four Y12s are flying. Two of the four aged DHC6s are being cannibalised. And things have gone quiet on plans to add six Vikings.

“The government has no clear strategy, that is true,” admits Bhagwan Krishna Singh, a former director. However, although political interference is at the root of the airline’s malaise, the government cannot be blamed for the company’s gross mismanagement over the years.

The saving grace for the airline has been its main cash cow: ground handling at Kathmandu Airport which brings in Rs2 billion year. However, other international airlines that fly into Kathmandu have complained about expensive but sloppy service, dilapidated ramp buses and inefficient check-in, which will need to be upgraded ahead of Visit Nepal 2020.

Suresha Acharya, deputy secretary at the Ministry of Tourism and Civil Aviation, agrees that things must change: “The government has two options: either invest in shares, or invite foreign investment. But with the corporation’s financial situation so dire it is unlikely foreign partners will be interested.”

Read also: What can Nepal learn from Ethiopia?, Kunda Dixit

Why Still Blacklisted?

The European Union (EU) and the International Civil Aviation Authority (ICAO) blacklisted Nepali carriers from flying in European airspace after a series of crashes, including a flight to Lukla from Kathmandu airport that killed 19 people, including seven Britons.

After a safety audit that suggested reforms, in 2017 ICAO removed Nepal from its list of countries with Significant Safety Concern. However, the EU has maintained its ban, citing structural and safety concerns.

The main EU complaint is that the Civil Aviation Authority of Nepal (CAAN) is both a regulator and an operator, because it also manages Nepal’s airports. The cabinet last month last week agreed in princple to separate CAAN’s regulatory and service functions, and instructed the Ministry of Tourism and Civil Aviation to draft a law and present it to Parliament for debate.

New Tourism Minister Yogesh Bhattarai (pictured) said on Wednesday: “I will work to reform civil aviation safety in Nepal.”

The government has been working on unbundling CAAN since 2012, but sceptics say the EU is naive to insist on this provision since the two bodies will still be under the purview of the ministry, with one chaired by the minister and the other by the secretary at the ministry.

Around 5 years ago, Spanish company Ineco presented to the ministry a $4.2 million strategy with funding from the Asian Development Bank, which included restructuring of CAAN, a business plan and employee training. However, all is on hold until the new legislation is passed.

The EU’s other concern is frequent helicopter accidents in the past four years. Aviation experts say these had to do more with Nepal’s terrain and weather, noting that none of the accidents were caused by technical malfunctions. In fact, most domestic air crashes in Nepal have happened during flights to remote airports, there have been no fatal crashes on trunk routes since 1999.

One retired senior CAAN official puts it bluntly: “Nepal Airlines has bought new Airbus, there is no reason the EU should still blacklist us. We are being punished for Nepal Airlines being forced to operate Chinese planes.”

The EU ban has had a direct impact on Nepali carriers, especially NAC, as it has been unable to operate the recently bought widebody Airbus A330 aircraft on long-haul flights.