Trouble is brewing for Nepal Airlines after no bidders appeared to buy the Chinese planes in multiple round auctions.

The six condemned planes—four 17-seater Y12e aircraft and two 56-seater MA60 aircraft—were acquired between 2014 and 2018 and were worth Rs6.66 billion in grants and loans. One crashed in Nepalgunj.

The five planes have been grounded at the remote parking bay on the eastern side of Tribhuvan International Airport in Kathmandu since 2020 and are gathering rust.

In July 2020, the board of directors of Nepal Airlines unanimously decided to stop flying the Chinese planes as they cost more money to operate than they brought in.

Nepal Airlines twice issued notices to lease them out on September 14, 2022, but no one was interested.

Then, Nepal Airlines decided to get rid of them permanently.

On January 19, the airline requested proposals for a full appraisal of the two MA60 and three Y12e aircraft. An American company that did the appraisal valued the aircraft at Rs220 million.

But fearing selling the aircraft at junkyard price may attract the anti-graft body’s interest, Nepal Airlines management decided to do a separate internal assessment.

As per the Nepal Airlines value, the asking price of the MA60s, with registration mark 9N-AKR, was $8,225,501; for 9N-AKQ, it was $4,922,235.

Similarly, the asking price for Y12e, with registration mark 9N-AKV, was $2,412,671, 9N-AKT was valued at $2,358,860 and 9N-AKS at $1,658,517.

In contrast to the valuation made by the American company, Nepal Airlines set the asking price of five Chinese planes at $19,577,784 (Rs2.60 billion).

Now, Nepal Airlines is determined to give one last try to auction the Chinese planes. Officials are working tirelessly, and they believe a successful third attempt is possible, despite the challenges. Failing to get the bidders on the third attempt would put the national carrier under pressure to sell them at scrap value, but the team is not giving up.

“We are in the process of starting a fresh auction. This will be the third attempt,” said Devendra Pun, spokesperson (technical) for Nepal Airlines.

“There will be a new evaluation of the aircraft rates, and we are hopeful of a positive outcome,” said Pun. The sale of these planes could mark a new beginning for the airline, reducing some financial burden they are responsible for.

After spending $20,000 on the international appraisal report, there will be little appetite for another appraisal. Pun said he is unsure whether Nepal Airlines would hire another international appraiser or do it internally.

The management had tabled the proposal to auction the planes for the third time at the board on April 2. The board, however, is yet to decide. “The management is carefully considering all options and is committed to making the best decision for the future of Nepal Airlines,” said Pun.

Nepal Airlines officials say the grounded planes have been more trouble than they are worth.

Operating the aircraft was a massive financial strain, exacerbated by breakdowns and a lack of pilots.

The company is in great distress, saddled with a debt totalling nearly Rs50 billion.

Officials said the Chinese-made aircraft had turned into white elephants right after they arrived. They doubt anyone will buy them.

The national flag carrier put the Chinese planes up for lease on September 14, 2022. Prospective bidders were given an October 31 deadline. As there were no bids, the deadline was extended until November 16. There were still no takers, and the management decided to sell them off.

The MA60 is a turboprop-powered airliner produced by China’s Xi’an Aircraft Industrial Corporation. Both manufacturers are subsidiaries of the Aviation Industry Corporation of China (AVIC), a government undertaking.

The Y12e is a twin-engine turboprop utility aircraft built by Harbin Aircraft Industry Group, previously Harbin Aircraft Manufacturing Corporation.

Except for flying to a few airports in the Tarai, these aircraft spent more time on the ground than in the air, even during operating hours.

Before the planes were grounded, the total accumulated losses of these planes came to Rs1.9 billion, nearly half of their cost.

A brief report submitted to the tourism ministry shows that the airline is paying insurance, parking and regular check-up charges for the grounded planes.

Nepal Airlines signed a commercial agreement with China AVIC in November 2012 to procure six aircraft—two MA60s and four Y12es.

China provided grant and concessional loan worth 408 million Chinese yuan (Rs6.67 billion) to purchase the six aircraft.

Of the total aid, a grant of 180 million yuan (Rs2.94 billion) went to pay for one MA60 and one Y12e aircraft, and a 228 million yuan (Rs3.72 billion) loan was used to purchase an MA60 and three Y12e aircraft.

As per the agreement, the Nepal government has to pay 1.5 percent annual interest, a service charge, and management expenses amounting to 0.4 percent of the overall loan taken by the Ministry of Finance.

The ministry, in turn, would charge Nepal Airlines an annual interest of 1.75 percent on the disbursed loan amount.

As per the November 2012 agreement, China gave Nepal Airlines a seven-year grace period during which it would not have to pay interest or instalments. The planes have completed the seven-year grace period.

The loan’s payback period is 20 years or by March 21, 2034.

Nepal received the first batch of planes in 2014. However, due to issues with the first batch, the delivery of the rest was stalled for years.

The second batch of MA60 and Y12e aircraft arrived in January 2017 as part of the six-aircraft deal between Nepal and China.

The corporation received the final two Y12e aircraft in February 2018. The finance ministry owns the planes, and Nepal Airlines operates them.

In 2014, marking the beginning of what was supposed to be a new era for Nepal Airlines after acquiring the planes, it had even changed its classic red and blue stripes livery, opting for a more modern design.

But these planes never brought happiness and money, said officials.

Nepal Airlines—known more for its poor service, planes being grounded most of the time and frequent management changes—has been eviscerated by politicking.

Every time a new management team or tourism minister comes in, the process of replacing the Chinese planes with new Western-made regional turboprops begins.

A few months ago, a committee headed by the former governor of Nepal Rastra Bank Deependra Bahadur Kshetry suggested selling Nepal Airlines’ Rs4.5 billion worth of shares in Soaltee Hotel to buy new planes for domestic use.