Prime Minister Balendra Shah recently highlighted what he described as encouraging signs of recovery at Nepal’s flag carrier, Nepal Airlines Corporation (NAC). In a social media post, Shah said the airline had generated Rs6.27 billion in revenue in just four months, achieved an 86 percent occupancy rate and repaid Rs1.06 billion in loan instalments.

But the airline’s own preliminary annual figures paint a less upbeat picture.

NAC estimates that it generated around Rs23.40 billion in revenue in the last fiscal year, while its expenses are expected to reach roughly Rs24.40 billion. That would leave the airline with a deficit of about Rs1 billion for the year, despite the increase in revenue.

The corporation has yet to complete its final financial statements. Archana Khadka, NAC’s corporate director and spokesperson, said income and expenditure figures from several stations were still being compiled. The preliminary figures should therefore not be treated as final, she said, adding that both revenue and expenses could rise once the accounts are completed.

Even so, the preliminary figures indicate that NAC’s revenue in fiscal year 2025-26 rose by about 12.5 percent from roughly Rs20.50 billion the previous year. The increase suggests that the airline is generating more business, but its inability to contain costs continues to undermine its finances.

NAC had set a far more ambitious target in its budget for the fiscal year. It projected total revenue of Rs37.85 billion against expenditure of Rs37.72 billion, with an expected surplus of about Rs125 million. The preliminary actual revenue is therefore substantially below the budget target.

Ground handling remains a key revenue source

Ground handling remains one of NAC’s most important sources of income. The airline estimates that it earned around Rs5.71 billion from the service in the last fiscal year, up from about Rs5.04 billion the previous year.

Khadka said the number of international flights had fallen temporarily because of the West Asia conflict, but the impact did not last long. Revenue from ground handling has since increased as more international airlines have begun operating in Nepal, she said.

Around 30 international airlines currently operate in Nepal. NAC provides ground-handling services to most international carriers at Tribhuvan International Airport, with Air India among the notable exceptions.

The corporation had budgeted for Rs7.92 billion in ground-handling revenue for the fiscal year. The preliminary actual figure, however, is well below that target.

The latest financial figures show that while NAC has managed to expand revenue, it has struggled to keep expenditure under control. The problem is not new. The airline has increased its income in recent years, but repayments on its loans, interest costs, aircraft maintenance and operating expenses have continued to weigh heavily on its balance sheet.

According to the Office of the Auditor General, NAC’s total revenue rose from Rs9.46 billion in fiscal year 2020-21 to Rs24.21 billion in 2022-23. Despite that growth, the corporation has continued to post losses. It recorded a loss of around Rs1.51 billion in fiscal year 2023-24, according to the auditor general’s report.

Debt remains NAC’s biggest problem

NAC’s biggest financial burden is its debt.

The corporation borrowed from the Employees Provident Fund and the Citizen Investment Trust to purchase four Airbus aircraft. Repayment of the principal and interest on those loans has become a major strain on the airline’s finances.

According to NAC records, it has so far repaid Rs16.54 billion on the loans taken to purchase the four aircraft. Its preliminary records show that about Rs46.22 billion in liabilities related to those loans remain outstanding. Including other borrowings, NAC’s total debt is estimated at around Rs51 billion.

Khadka said there are some discrepancies between the debt figures maintained by NAC and those recorded by the lending institutions.

The airline is now seeking to reduce its interest burden and restructure its debt, said executive chairman Maheswor Bhakta Shrestha. NAC is also exploring the possibility of replacing some of its expensive borrowing with loans carrying lower interest rates.

Shrestha said discussions had already been held with the lenders.

NAC borrowed Rs34 billion from the two institutions to purchase the four Airbus aircraft. It has been paying interest rates of as much as 10.5 percent. The corporation had projected financial expenses of around Rs4.10 billion for fiscal year 2025-26 alone.

NAC believes that reducing its interest burden would narrow the gap between its operating revenue and expenditure and provide some room for financial recovery.

A fleet too small to support expansion

NAC’s operating capacity is also constrained by the condition of its fleet.

The corporation has 11 aircraft, including five Chinese-made aircraft. Only six are currently operational: two Twin Otters, two narrow-body aircraft and two wide-body aircraft.

Several aircraft have remained grounded for extended periods, limiting the airline’s ability to expand services and make full use of its fleet.

NAC has repeatedly identified fleet expansion as necessary for increasing both domestic and international services. Its programme for fiscal year 2025-26 included plans to add narrow-body aircraft for international routes and study the possibility of leasing aircraft where necessary.

Those plans, however, did not move forward.

Under its budget projections, NAC had planned to operate 2,520 international flights using two Airbus A330s and two A320s and carry more than 865,000 passengers. For domestic services, it had planned 5,174 flights using two Twin Otters.

The airline’s failure to expand its fleet while some existing aircraft remain grounded has limited its ability to increase revenue, even as demand for air travel grows.

NAC’s management argues that the recent increase in revenue is nevertheless a positive sign.

Khadka said the income growth should be viewed as an encouraging development. But a sustained financial turnaround will require more than higher revenue, Shrestha said.

The new management is seeking to pursue three objectives simultaneously: increase revenue, control operating costs and reduce the cost of servicing NAC’s debt.

For an airline carrying around Rs51 billion in debt and operating only six of its 11 aircraft, that will be a considerably harder task than the recent rise in revenue figures alone might suggest.