Debt load, pilot shortage threaten NAC’s growth

July 02, 2018

The Kathmandu Post, 2 July 2018

Has the arrival of the new Chinese-made aircraft become a headache for Nepal Airlines Corporation (NAC), the national carrier?

The corporation has started worrying that the Chinese-made aircraft, particularly the 17-seater Y12e would push them into a corner as there are no signs of these aircraft taking off anytime soon.

On Sunday, Tourism Ministry Joint Secretary Suresh Acharya suggested the NAC to make plans to manage the Chinese-made aircraft -- by either operating it or phasing out the aircraft.

The 55th annual report of the Office of the Auditor General has said that the corporation had been operating the Chinese-made MA60 aircraft incurring losses of Rs66.7 million annually, while its losses from the Y12e amount to Rs39.4 million annually.

“The losses are expected to balloon,” he said on Sunday, speaking at the 60th anniversary of the NAC.  “The NAC needs to review on what the long-term effects of Chinese planes would be on its financial health.”

The aircraft were procured with the objective of serving remote mountain airfields. However, in the last four years, NAC has not flown the aircraft to any mountain airfield or even conducted test flights to Lukla and other mountain airports where demand has increased notably.

Among four Y12e planes, two were delivered in February. The shiny new planes have remained parked at the airport since then due to a lack of flying crew. No one knows whether they will fly or not. The government might not easily phase out the Chinese-made planes but it is finding another alternatives: buying six twin otter planes.

It’s because, the government is in pressure to serve the remote airfields, as part of its social obligation, where private carrier hesitate to operate.   

Moreover, the arrivals of wide body Airbus A330 jets have become another challenge for NAC.

According to Acharya, who is also the board member of NAC, the operating cost of A330 is four times higher than operating the narrow body jet A320. “It’s a big challenge ahead as the entry of A330 has opened the gates for the ‘cash flight,”’ said Acharya.

Hiring foreign pilots, paying for fuel and ground handling charges in advance, paying loan’s installment and interest would require NAC to manage huge cash flow. As NAC loans to different financial institution has reached nearly Rs40 billion, it has to pay at least Rs3.5 billion annually in interest. “So the days ahead for NAC will not be easy,” said Acharya.

The corporation is planning to buy two more A320neo jets and has been seeking a Rs12 billion loan. The NAC has sought another Rs5 billion to buy six Twin Otter planes, but in a form of equity injection from the government.

The industry insider and tourism ministry officials said NAC is now in a debt trap.

Tourism Minister Rabindra Adhikari said NAC need to translate these challenges to opportunities. NAC is 60 years now but this experience will not matter, he said, adding that in airlines business age doesn’t matter. “It’s the competency and the services that matter,” he said.  

“So, from now onwards, don’t follow your standard practice to get the planes first and find the pilots to fly them later. This traditional practice will not work now,” he said, urging the corporation to be serious as it’s the high time for NAC to improve and grow.