Nepal Airlines shares should be sold to the private sector too, experts sayThe state-owned carrier has decided to sell 25 percent of the shares to other government corporations.
“After six decades, the government has taken a bold decision to sell part of the national flag carrier to raise capital, and this shows seriousness to reform the ailing company. The initiative will also open the floodgates to investment from external sources; but it will not bring any change in ownership, the work culture and environment at the corporation,” said Birendra Bahadur Basnet, managing director of Buddha Air, the country's largest private carrier.
“Today, transparency and good governance matters for survival. Even if Nepal Airlines' operations are not given to private hands, running a business by instituting a system of checks and balances is necessary to prevent irregularities,” he said.
“For Nepal Airlines, a shareholding ratio of 51:49 will be the most viable option,” Basnet said, adding that it would keep the majority stake to retain its national flag carrier tag because it's easy to deal worldwide for routes and slots through government negotiation.
Last week, the Nepal Airlines board decided to sell 25 percent of the shares to other state-owned firms like the Employees’ Provident Fund, Citizen Investment Trust, Nepal Oil Corporation and other entities.
The government plans to raise cash by selling the shares to jack up the paid-up capital to Rs20 billion from the existing Rs340 million.
Basnet said that the modality to raise the paid-up capital was appropriate, but this should come from both the public and the private sector. Selling another 24 percent of the shares to the public and the corporate sector for a total of 49 percent will allow the government to amass Rs50 billion for paid-up capital, he said.
Private investors are 'interested' in acquiring a stake in Nepal Airlines because with its large fleet of aircraft, it can be operationally profitable and bring a large number of tourists and revitalise the economy.
Nepal Airlines flew 17.77 percent of the 4.13 million international passengers that passed through the county’s sole international airport last year.
“The statistics show that more than 80 percent of the international market is commanded by foreign airlines, and around Rs200 billion goes out of the country annually in ticket and cargo costs,” said Basnet.
“We have to make our national flag carrier strong if we really want to grow our economy,” he said. “Nearly 400,000 migrant workers leave the country annually, and everyone wishes to fly the national flag carrier. These sentiments need to be cashed in.”
In a recent interview with the Post, former government secretary Bimal Wagle said that the proposal of equity injection into a debt-ridden state-run agency by another state-run agency was a strategy to ruin both.
Wagle, who was once chief of the Public Enterprises Board, said that equity investments are basically made for two purposes—for a cash injection to improve the financial health of the company or to reform the company by introducing new management.
“But in the case of Nepal Airlines, neither of these objectives will be met,” he said. Wagle believes that the national flag carrier is in dire need of reform in management, and the divestment plan will not contribute meaningfully to it.
Basnet admits that bringing the private sector onboard will make Nepal Airlines transparent as, under a public limited company model, it will need to justify each and every deal, purchase and transaction in a periodic, proper and transparent manner.
“Even if we have a stake smaller than 5 percent, it will allow us to question the board and management on every issue.”
Given the airlines’ perennial woes, the government has long been considering privatising the airline or bringing in a strategic partner. In 2007, it initiated a plan to hand over management to a foreign strategic partner so that it could reform and rescue the troubled carrier. But the plan fell apart due to frequent changes in government.
Former finance secretary Rameshwor Khanal said that the divestment plan was a good move and important as well, but if the plan is to sell the shares to state-owned enterprises only, then it is a notorious plan.
Nepal Airlines has been suffering from management problems, and selling shares in the company to other state-owned companies will not resolve this deep-rooted malaise, he added.
“The best thing to do would be for the government to keep the ‘golden share’ that may be 12 to 15 percent, and sell the rest,” he said, adding that the golden share means the company will issue shares to the public, but the government will retain veto power over certain company actions or specified circumstances.
“We have talked about privatising the carrier many times in the past several years, but it did not happen mainly due to short-lived governments. Now the prime minister seems to be taking the issue seriously.”
Khanal said that Nepal Airlines had a competitive advantage because of the country’s vast geography where foreign airlines are reluctant to operate.