Keeping Nepal Airlines airworthy

Nepal Airlines is once more making headlines for all the wrong reasons: this time it is over the state-owned carrier’s purchase of two Airbus 330-243s last year.

A sub-committee of the Public Accounts Committee (PAC) of Parliament said Wednesday that it found irregularities in the deal involving the widebody jets, that it violated the Public Procurement Act, did not meet specifications, and that Rs 4.36 billion in kickbacks was involved.

A parliamentary sub-committee on Tuesday recommended that the airline’s Managing Director Sugat Ratna Kansakar be sacked, and action be taken against Tourism and Civil Aviation Minister Rabindra Adhikari and two of his predecessors, the present and two past secretaries in the ministry, and dozens of other officials.

Scandals are not new in the history of Nepal’s flag carrier, especially after 1990 when politicial interference in the airline ruined Nepal’s once-reputed flag-carrier. Allegations of corruption on appointments of general sales agents in Europe, kickbacks on the lease of jets and high-level corruption dogged the airline throughout the 1990s.

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The $210 million Airbus deal is the biggest ever in the country’s aviation history, and so is the sound and fury surrounding allegations of payoffs. Once again, the airline is caught in a web of political and financial intrigue.

The sub-committee report says the airline inflated the cost of the plane to $104.8 million, whereas the 2016 price tag was $88.09 million. It also says the plane's weight is only 230 tons when it should be 242 tons.

But airline sources say the $88.09 was the price of the plane in 2009, and the escalation corresponds to inflation. They add that the jet's maximum takeoff weight was configured for full payload long-haul takeoffs from Kathmandu airport's high-and-short runway.

The Airbus case has become political football as agents for aircraft manufacturers who lost out on the deal, rival carriers that stand to lose if Nepal Airlines does well, and those interested in its future privatisation, are all involved in stoking the crisis.

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Last month at an employees union meeting, Foreign Minister Pradeep Gyawali warned: “There is a whole mafia involved in trying to wreck Nepal Airlines.”

He said rivals felt threatened by the carrier’s route expansion plans with the acquisition of new jets, and were deliberately trying to bring it down. There are indications that some vested interests in the airline’s own management are abetting this effort.

The coordinated attacks coincide with the airline finally showing signs of a turnaround. In 2018, Nepal Airlines became the number one international carrier with a 12% market share, outpacing Jet Airways (see graph).

This despite the fact that its management had made no preparations for training extra pilots, or renewing route rights for destinations in China, Korea, Japan and Australia before the 330s arrived in mid-2018.

The Airbus 330s need to be in the air 16 hours a day for full utilisation, but currently fly only 7 hours on short and medium-haul routes like Delhi, Kuala Lumpur and Doha. Even so, in the first six months of operation, the Airbus 330s registered an imprssive 72% load factor, while the Airbus320s operate at 80% of full capacity.

Says a CAAN official: “The widebodies have a huge potential because of diaspora and tourist traffic on long haul routes, but Nepal Airlines management did nothing to plan for route expansion and market those destinations. The airline is being undermined by its own weak management.”

It is doubtful if Nepal’s flag carrier can withstand such sustained internal mismanagement, political interference, and attacks by private rivals. Daily headlines in the national media are an indication that the vultures are circling. Instead of a proper non-political, independent probe, vested interest groups have converged to wreck Nepal’s national airline over the Airbus330 deal.

Ironically, this comes at a time when the airline is poised to spread its wings with its two long-haul Airbus 330s, two medium-range Airbus 320s, and a plan to add Viking Twin Otters to the domestic fleet, as well as two more 320s once Lumbini and Pokhara airports become operational.

The airline did overstretch itself with the 330 purchases, but the losses accumulated because the two planes sat in the hangar for more than two months awaiting CAAN clearance.

Now, they are not airborne long enough to start making money. Airline insiders say full utilisation of the fleet would easily increase the carrier’s annual turnover by Rs9 billion a year.

But such market expansion would directly affect the revenue of carriers competing with Nepal Airlines on the Gulf and Malaysia routes. Cartelling on the profitable Delhi route kept fares artificially high at up to Rs40,000, but after Nepal Airlines resumed regular twice-a-day service on this route fares have dropped to Rs15,000.

Fares to Dhangadi have also halved to Rs5,000 after Nepal Airlines broke the domestic monopoly on the trunk route. Private carriers operating Jomsom and Lukla also stand to lose business if Nepal Airlines modernises its STOL fleet.

“Cartels over-charging passengers would like nothing better than if our planes sat on the ground,” said Nepal Airlines Managing Director Sugat Ratna Kansakar, who denied wrong-doing and said he has sent Airbus330 files to the Parliament committees.

Political interference in the airline is relentless. The government forced it to induct Chinese MA-60 and Y-12s, which have been a big liability. Last year, the PMO foisted Madan Kharel as executive chair without removing Kansakar.

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Strangely, one of Kharel’s first acts in office was to bring out a report that concluded the airline was bankrupt. Most airlines go through a liquidity crunch during the expansion phase, yet the crisis was magnified through selective leaks in the media.

Credible insiders told Nepali Times in separate interviews that management appears to be working to deliberately undermine the company’s image so as to benefit those eying its future privatisation.

Nepal Airlines now competes directly with Himalaya Airlines, a joint venture between China’s Tibet Airlines and Yeti Airlines.

Update 4 January 1800:

The Cabinet late Thursday set up a high-level committee to probe the Airbus 330 purchase deal of Nepal Airlines and come up with a report within 45 days.

The three-member team is headed by former Chief Justice Govinda Prasad Parajuli, ex-deputy attorney Narendra Prasad Pathak and Madan Sharma, a chartered accountant.