Reform committee suggests handing Nepal Airlines management over to a foreign partnerNumerous committees have recommended the same thing in the past, but nothing has been implemented.
A committee formed to recommend reforms for the beleaguered Nepal Airlines Corporation has suggested that the government restructure its loans, bring in a foreign partner to manage key departments, and purchase two new Airbus A320 jets. These are some of the immediate reform measures the committee has suggested to revive the ailing national flag carrier, which has been teetering on the brink of bankruptcy due to debts and a poor operation plan.
The committee, led by former tourism secretary Sushil Ghimire, submitted its report to Tourism Minister Yogesh Bhattarai on Wednesday, proposing immediate reform measures for 13 areas. Most measures are a continuation of recommendations made by several committees in the past.
The Ghimire-led committee is the seventh in two decades. Almost none of the recommendations made by the earlier committees has been implemented.
At a press conference after receiving the report on Wednesday, Bhattarai, however, promised not to dump the report and said that he would implement the recommendations by setting a timetable.
One crucial recommendation considers restructuring the carrier’s loans, which amount to around Rs37 billion. If the reform process is to be expedited, as per the recommendations, its loan repayment time can be rescheduled for six months. The corporation has been paying an interest of Rs3 billion annually to its lenders.
But in a recent interview with the Post, Nepal Airlines Executive Chairman Madan Kharel said that the loan restructuring plan would not help, as the carrier wants the government to increase its investment by providing a bailout of Rs20 billion.
“We have not asked for money for our daily operations,” Kharel told the Post. “We want the money to pay the loan so that the annual interest rate will be halved.”
Lenders' investments are at risk since the corporation has already defaulted on three instalments, according to the report. Nepal Airlines’ lenders—the Employees’ Provident Fund and Citizen Investment Trust—are state-owned but they have levied a high interest rate of 10.50 percent, making the corporation sick, said the report. The committee has suggested bringing down the interest rate on par with the market rate of 6-7 percent.
“We all know that the national flag carrier is going through a rough patch. Nepal Airlines is in the headlines for all the wrong reasons, largely due to mismanagement,” said Ghimire, who served as the airline’s chair for 18 months.
The government should not view Nepal Airlines simply as a flag carrier but also assess how the airline can contribute to the national economy, said Ghimire. The government also needs to understand the corporation’s social obligations as a state-owned airline in remote mountainous areas, according to Ghimire.
The report has also recommended that Nepal Airlines purchase new planes. And as the airline gets mired in controversy each time it buys a new plane, the report has recommended that Nepal Airlines obtain its planes directly from the manufacturer.
“Since Nepal Airlines has adopted an all-Airbus fleet policy, it can buy planes directly from the manufacturer. To make the process transparent, negotiations should involve representatives from the Finance and Tourism ministries,” said Ghimire.
The first report suggesting reforms for Nepal Airlines had also recommended the same thing—that planes be purchased directly from the manufacturer to prevent financial irregularities. That report was prepared by a high-level committee led by former chief secretary Damodar Prasad Gautam in February 2002.
The new report has suggested that the government immediately buy two Airbus A320 jets to strengthen its international fleet. With just four planes, Nepal Airlines cannot compete in the international market.
As in the past, the Ghimire-led committee has again suggested that key departments be handed over to a foreign management partner. In the long term, the government should find a strategic partner, ideally a strong international airline, for the corporation and operate the airline under a company model.
While management partners are paid fees, a strategic partner makes an investment and shares the profit or loss.
“For this, the corporation should conduct its due diligence audit to ascertain the share modality,” said Ghimire. “The partner will bring in new planes and make the corporation autonomous.”
In August 2002, economist Shankar Sharma had also suggested two modalities to reform the airline. He had suggested giving 60 percent in shares to a foreign strategic partner and the rest was to be divided: 10 percent to Nepal Airlines, 10 percent to tourism entrepreneurs, 5 percent to corporation employees, and 10 percent to the public.
The second option proposed by Sharma was to dissolve the corporation, establish a new company and then allocate 60 percent shares to a foreign airline.
Yet another report prepared by the International Civil Aviation Organization in September 2004 had suggested a parent-subsidiary model. The parent company would look after international operations while the subsidiary would look after domestic operations. That report had also suggested that the airline gradually transition towards privatisation.
In January 2010, another committee led by Murari Bahadur Karki, joint secretary at the Tourism Ministry, suggested a company model, with 51 percent shares going to the management partner and 49 percent to the Nepal government.
“Even if 50 percent of the suggestions in this report are implemented, it will turn around the corporation,” said Ashok Pokhrel, a former board member of the corporation. “The government should implement the modality of Ethiopian Airlines where ministers are its board members and all decisions get promptly implemented.”
However, Pokhrel said it was unfortunate that the report failed to address the ban on Nepali airlines by the European Commission, which has hampered the national flag carrier’s growth as well as that of other private airlines.
“The report has not recommended how Nepal Airlines should plan to resume its flights to London, Frankfurt and Paris, which are the money-making destinations,” Pokhrel said.