National flag carrier directed to conduct due diligence auditThe Tourism Ministry has directed the Nepal Airlines Corporation to conduct its due diligence audit, a move that allows the government to sell shares in the national flag carrier or to induct a strategic partner into it.
The Tourism Ministry has directed the Nepal Airlines Corporation to conduct its due diligence audit, a move that allows the government to sell shares in the national flag carrier or to induct a strategic partner into it.
Tourism Minister Rabindra Adhikari told the Parliamentary Public Accounts Committee (PAC) on Wednesday that the due diligence audit would allow them to ascertain the actual financial status of the corporation before going for a strategic divestment in the “immediate near future”.
Due diligence is an investigation or audit of a potential investment or product to confirm all facts, such as reviewing all financial records.
“The national flag carrier has become too tough to handle. It will not move ahead if we don’t act immediately,” he told the lawmakers. “As the strategic partner will also bring investment, we have to produce facts on the actual financial status of the corporation.”
He said that possessing four planes in the international market would not contribute to either tourism or the national economy. “We need to expand the corporation’s fleet. And presently, we have an option of inducting a strategic partner,” said Adhikari.
The government has finally moved to find a partner for the ailing flag carrier after the corporation, which was on a mission to reclaim its long-lost glory by adding two long range Airbus A330 jets, said it was running out of cash and teetering on the edge of bankruptcy.
The corporation has asked the government to bail it out from the financial crisis by seeking Rs20 billion in equity injection. The Finance Ministry did not budge. It has clearly indicated that until and unless the corporation finds a partner or goes
for divestment, it will not give a penny.
Minister Adhikari said that after the due diligence audit is completed, the process of converting the state-owned carrier into a company will start. “We need to convert the corporation into a company before getting a foreign strategic partner.”
Last August, a meeting of high-level officials from the Finance and Tourism ministries and the National Planning Commission decided to go ahead with the plan to convert the corporation into a company.
Following the acquisition of two Airbus A320s in 2015, the corporation acquired two more long-range A330s this year. With the acquisition of Airbus and Chinese aircraft, the carrier’s long- and short-term loans stand at Rs41.73 billion and it owes more than Rs3.66 billion in interest annually.
“It’s too late to induct a strategic partner at the corporation,” said lawmaker Hridayesh Tripathi. “It will be a tall task for the government to find a partner in this situation.”
The government has been considering privatising NAC or bringing in a strategic partner for the last decade. In 2007, it initiated a plan to hand over NAC’s management to a foreign strategic partner so that it could reform and rescue the troubled carrier. However, the plan fell apart.
In 1970, the then Royal Nepal Airlines Corporation (RNAC) invited experts from Air France under a programme to improve management and they handled most of the managerial positions until 1973. In 1972, RNAC acquired its first jet, a Boeing 727, in cooperation with the French carrier.
In September 2015, 21 foreign firms including Lufthansa Consulting and Airbus submitted letters of intent (LoI) to provide world class management consultancy services to NAC.
The carrier invited LoIs to improve its overall system performance by inducting a management consultancy service provider in the first phase, and handing over management in the second phase. The plan failed after the Finance Ministry refused to give money for such a management consultancy service.
Again in March 2016, the Tourism Ministry invited requests for proposals (RFP) from reputed airlines in the US, the UK, France, Germany and Australia through their respective embassies in Kathmandu to become a strategic partner with the national flag carrier.
Lufthansa Consulting, an independent subsidiary of the Lufthansa Group, was the sole applicant.
Lufthansa Consulting asked for a fee of Rs688.67 million for the services it would be providing in three phases. Subsequently, the Tourism Ministry asked the Finance Ministry for its input before submitting the proposal to the Cabinet for final approval.
The Finance Ministry could not figure out whether Lufthansa’s proposal amounted to privatisation or something else. The plan hit a snag.
Recently, Ethiopian Airlines has proposed to become a strategic partner through a government-to-government deal.