The legacy of our national flag carrier Nepal Airlines Corporation (NAC) dates back to 1958 when it was established as the Royal Nepal Airlines Corporation (RNAC). Since then, it has become a cornerstone of the country’s economy and tourism. Its international operations, which began in 1961, extended Nepal’s connectivity and global networks to the rest of the world, including Asia, the Middle East and even Europe.

Although NAC has improved its operations and fleet to better serve its customers and remain competitive in the airline industry, it is poised with numerous issues ranging from management, operations, and commercial arrangements to financial difficulties. During the Covid-19 crisis, it struggled with a cash flow to repay the loans taken on high-interest rates. To make matters worse, it had to pay penalties a few times for failing to repay interest on time. With only four international aircraft (two narrow-body A320s and two wide-body A330s) on its fleet, NAC is struggling to keep up with the competition in the airline marketplace. Thanks to its ground handling services which kept the income flowing in its balance sheet during the Covid-19 crisis. A significant portion of its revenue comes from it. Furthermore, the corporation is at the crossroads of remaining competitive in the market. These situations mandate the transformation of NAC.

State of NAC

Before adopting the liberal sky policy in 1992, NAC had glorious years of airline operation as it not only enjoyed the monopoly market share in the domestic market but also became a dominant player in the international market segment. A series of mismanagement, political interferences, malpractices in the fleet acquisition, lagging procurement procedures and issues in the senior management had multiple influences in shaping the organisation to its current condition. From taking several days for aircraft parts procurement to frequent changes in the airline management team, NAC has seen it all.

What we lack in managing NAC is envisaging the basic concept—an airline is a business entity—and thus implementing business policies as required. Of course, it is a service-oriented organisation, but we can’t operate it efficiently if we try to manage it in a similar way to handle other public enterprises. It is only a public enterprise that must simultaneously follow all the international standards for safe operation and compete with international companies. A fully owned state airline has to compete on routes, pricing and services governed by market economies in the international marketplace. The competitors—the global leaders in the international aviation market and highly rated airlines such as Emirates, Qatar Airways, etc. Within this competitive landscape, it is not easy for NAC to overcome the challenges, especially when it has to undergo mismanagement and ill practices. In this context, while a few changes in isolation might be good, but can’t resolve the issues embedded within an organisation. A complete transformation of NAC is inevitable to realise sustained growth to become a reputed airline in the region.

Amoeba Management

Among airline management options, several reform initiatives revived Japan’s national flag carrier—Japan Airlines (JAL), from similar circumstances that NAC is facing today. In 2009, JAL was besieged by a severe cash crunch crisis and faced steep financial losses despite remaining the largest airline in Asia by revenue. Look at the situation of an airline—a skewed cost structure with too many aircraft, bloated workforce and unprofitable routes, aggressive expansion in non-core associated services, and the 2008 global economic crisis. These factors had landed JAL with a debt load of over $25 billion, an operating loss of $518 million and a market value less than the price of a Boeing 747.

Japan Airlines (JAL) declared bankruptcy in January 2010 and underwent a major restructuring to become profitable again. Along with government intervention and support, key factors that contributed to JAL’s remarkable recovery are rationalisation of the cost structure through supply management and operational restructuring, cost-cutting measures, customer-oriented approach, strategic partnerships with renowned international airlines, adoption of innovation and digital technologies and change in the corporate culture inculcating shared values among all the employees.

Above all, a management philosophy with solid leadership and a commitment to change helped JAL to successfully navigate bankruptcy and return to profitability. Kazuo Inamori, the founder of the electronics leader Kyocera Corp, was appointed the Chairman of JAL by the Civil Aviation Minister in Japan. Inamori, who was then about 80 years old, didn’t want to take this responsibility. However, he was curious whether the airline could be saved through his management philosophy. Ultimately, he decided to reconstruct JAL because he wanted to protect 32,000 employees and avoid the adverse influence on the Japanese economy the bankruptcy of JAL could have. His commitment as a leader in restructuring and reviving the airlines is outstanding. Due to his leadership, within two years, JAL revived to become the world’s most profitable airline.

His management philosophy, famously known as Amoeba Management implementation at JAL, involved restructuring the company into several smaller, cross-functional teams, each with its responsibility and decision-making authority. A new management accounting system, “Amoeba”, was introduced, which drove accountability across all levels and divisions. This structure allowed JAL to respond quickly to changes in the market and improve its operations. Additionally, JAL encouraged open communication and collaboration among team members, fostering a more flexible and adaptable organisational culture. Implementing amoeba management at JAL resulted in increased efficiency and better customer service. With JAL’s experience with amoeba management, NAC can learn the example of organisational restructuring.

Reform initiatives

No airline can operate and grow without a steady growth of its fleet. Undoubtedly, the operations should be improved to become a dominant part of the airline revenue stream to remain competitive, retain sustained growth and spur the entire aviation industry. Consider this: If NAC had 20 narrow-body aircraft in its fleet, it could have easily placed a few aircraft as an operation base in national pride projects—Pokhara International Airport (PIA) and Gautam Buddha International Airport (GBIA). It is essential to simultaneously expand the airline industry and airport infrastructure development. If not, our investments in these projects won’t be fruitful as they should be. Moreover, they merely serve as a marketplace for international air operators. As a result, we won’t be able to grab the indirect, induced and catalytic benefits offered by the growth in overall air transportation.

Reform initiatives such as management contracts and/or strategic partnerships be a stepping stone in initiating reforms and organisational restructuring. We need restructuring and reinforcement in the airline management team and an overhaul of delays and ill practices. At the same time, revitalising and upgrading operation and ground handling services are paramount to reviving the glorious days of NAC. Many opportunities coupled with untapped destinations provided by Bilateral Air Service Agreements (BASAs) with 40 countries bestow a plethora of opportunities for NAC and other Nepali carriers. What NAC should commit to the general public is ensuring public financial discipline, transparency, accountability and integrity within the organisation. In order to execute this, we can adopt and adapt the successful best practices such as Amoeba Management from Japan Airlines. Localised in the Nepali context, this practice and management philosophy could be a panacea for restrengthening and transforming NAC. The NAC management must revisit its business model by understanding the significance of pursuing sustainable growth strategies, effective change management, and business process innovation.