NAC board likely to okay Rs24b loan deal today

May 02, 2017

The Kathmandu Post, Post Report, 2nd May 2017,Kathmandu 

Nepal Airlines Corporation (NAC) is expected to call a meeting of its board of directors on Tuesday to give the go-ahead to its management to sign a Rs24 billion loan deal to buy two Airbus A330 jets.

The national flag carrier plans to borrow Rs12 billion each from state-owned lenders Employees Provident Fund (EPF) and Citizen Investment Trust (CIT).

Tourism Joint Secretary Buddhi Sagar Lamichhane, who also sits on the airline’s board, said that it would be signing two separate loan agreements with the EPF and the CIT this week. 

The loan will be paid out in two disbursements. NAC will receive Rs4 billion each from the CIT and the EPF as the first installment to pay the pre-delivery order fee to the aircraft supplier US-based AAR Corp.

As per the sales and purchase agreement signed on April 7, NAC will release 35 percent of the total aircraft cost, which amounts to Rs8 billion, as pre-delivery order fee within 28 days of signing the contract.

The remaining amount will be paid after delivery of both aircraft.

Lamichhane said that NAC had tentatively agreed to pay interest on the loan at the rate of 9 percent annually. However, both sides are yet to finalize the term of the loan which is expected to be a maximum of 15 years.

The collateral for the loan will be the two aircraft, one for each lender. The government is the guarantor of the loan.

Earlier, NAC had planned to borrow money from the EPF only. However, the board directed the management to take loans from the two state-owned lenders in order to spread out its debt.

NAC already owes the EPF Rs10 billion which it borrowed in 2015 to buy two Airbus A320-200 aircraft, and borrowing another Rs24 billion would make its total debt balloon to Rs34 billion. Taking such a massive loan from a single company could be risky, said a NAC official

NAC signed a $209.6-million contract with AAR Corp to buy two long-range Airbus A330-200 on April 7, making it the largest ever aircraft purchase deal in Nepal’s aviation history.

The two jets are expected to arrive in Nepal by the second quarter of 2018.

The national flag carrier plans to connect Kathmandu with Seoul in South Korea, Tokyo in Japan, Dammam in Saudi Arabia and Sydney in Australia once it adds wide-body aircraft to its fleet. It has also announced plans to increase flight frequencies to key destinations like Kuala Lumpur, Hong Kong and Doha.

A notice inviting proposals from aircraft manufacturers, airlines, aircraft leasing companies and bankers for two Airbus A330-200 aircraft was issued on September 26, 2016.

The supplier is required to include the cost of a minimum set of flight and maintenance crews for the duration of at least one year. It also has to include the cost of consumable spares and tools required for day-to-day line maintenance up to the ‘A’ check level for a year.