The Nepal Airlines Corporation (NAC) has been beset by controversies since its early days. In the 1990s, the NAC appointed a controversial general sales agent for European operations. In the 1997 ‘Chase Air scam’, NAC paid a large sum ($783,750) from the corporation’s coffers and sent an advance payment to lease a Boeing 757 that never landed in Nepal. In 2001, the Girija Prasad Koirala-led government leased a 12-year-old Boeing 767 from the Austria-based Lauda Air on personal negotiation, contrary to a directive issued by the parliamentary Public Accounts Committee. In 2017, the procurement of two Airbus A330 jets, popularly known as the ‘wide-body scandal’, resulted in significant financial losses and convictions of several officials in 2024. Then, in early 2020, European aerospace company Airbus admitted that it paid 350,000 euros in bribes to Nepali officials.

Now, a government report has highlighted how time is running out for the NAC. It is burdened with liabilities it cannot service and assets that cannot cover its obligations. The report has reached an unavoidable conclusion: Unless immediate corrective measures are taken, the airline may slip into insolvency, jeopardising not only its future but also the long-term savings of millions of Nepalis invested in it. The numbers in the report paint a stark picture. The company’s current assets cover only about 60 percent of its short-term liabilities. The debt-to-equity ratio has plunged to a staggering -12.33, which means that the airline’s paid-up capital is already negative. With accumulated liabilities approaching Rs50 billion, most of it accounting for aircraft procurement loans, the NAC is now unable even to cover the interest on its borrowings.

This is not a temporary liquidity challenge; it is a structural insolvency. As the corporation gets direct capital from public funds such as the Employees Provident Fund and the Citizen Investment Trust, it is consuming public capital without generating the revenues necessary to sustain operations. If the organisation were a private entity, the current situation would prompt a swift restructuring or formal bankruptcy proceedings. But as the NAC is a public entity, the financial burden of the failing corporation has to be borne by citizens.

Nepal is a landlocked country with high tourism potential. In 2023, travel and tourism’s total contribution to gross domestic product (GDP) stood at 6.6 percent (Rs358.9 billion or $2.7 billion). A decent fleet of aircraft under the national flag carrier doing international routes is the backbone of any tourism-centric economy. The national flag carrier of Thailand, whose tourism sector makes up 8.9 to 20 percent of the national economy, has a fleet size of 78 flying across 65 destinations. By comparison, the NAC, despite starting around the same time, has a meagre fleet size of four.

The NAC can still be revived, but only with a clear strategic vision. Fleet modernisation and strong governance offer pathways to recovery. However, any revival effort must prioritise protecting public savings, instituting accountability for past decisions, and ensuring that political leaders do not treat the NAC as an extension of party patronage networks. Splitting the NAC into multiple entities can help isolate operational responsibilities, bring transparency and reduce political manipulation. The NAC can either undertake bold reforms that transform it into a transparent and competitive institution, or continue down a path that endangers public finances and erodes public trust. Time is running out.