Nepal Airlines Corp signs Rs 10b loan with EPF to buy two jets

Nepal Airlines Corp signs Rs 10b loan with EPF to buy two jets

KATHMANDU, JUN 19 -

Nepal Airlines Corporation (NAC) finally looks like buying planes to expand its skeleton fleet after each of its past purchase plans ended in disaster. The national flag carrier signed a Rs 10 billion loan agreement with the Employees’ Provident Fund (EPF) on Tuesday to buy two Airbus aircraft it has been eyeing for a long time.

With the loan accord signed, sealed and delivered, NAC will sign an aircraft purchase agreement with the European plane maker this week to formalise the memorandum of understanding (MoU) signed between them on April 6.

“This is the final stage of the aircraft procurement process. The plan to buy planes has succeeded after a long time,” said Madan Kharel, NAC managing director. “We have not been able to procure aircraft for two and a half decades. Tuesday’s deal means that the jets will be delivered on the stipulated date.”

As per the MoU, Airbus will deliver one of the two A320-200 aircraft in February 2015. The second one will arrive in March.

According to NAC, the interest on the loan has been fixed at 12 percent per annum, and the EPF has given a maximum of 15 years to repay it. Kharel said they expected to be able to repay the money in seven to eight years.

NAC is required to make interest payments on a quarterly basis, which amounts to Rs 1.44 billion annually.

A fund will be created at a bank recommended by the EPF where NAC will deposit 30 percent of its monthly income.

The two jets themselves will be the collateral for the loan. NAC’s land and building where its headquarters is located have also been put up as security. As per the loan deal, NAC will insure the jets but the EPF will be the beneficiary. “We have issued the money to NAC as per the EPF’s strategy and policy of investing in projects which have a long-term impact on the country’s economy,” said EPF administrator Krishna Prasad Acharya.

“After a meticulous study, we concluded that the project was viable and we should finance it. We believe that the jets will contribute to the country’s economy.” However, Acharya said that NAC should be more proactive with regard to its management.   

On May 30, a Cabinet meeting directed the Finance Ministry to sanction a loan for NAC to procure jets. Nepal’s venerable airline has been trying to expand its fleet for the last two decades, but something has gone wrong every time as if the plan was jinxed. Past aircraft purchase attempts have ended in fiasco with airline officials getting into trouble with anti-graft bodies, parliamentary committees and various ministries of the government over procedural lapses.

“NAC’s inability to expand its fleet has resulted in immense losses to the country’s economy. Nepal’s aviation market is worth more than Rs 100 billion annually, but we have not been able to benefit from it,” said Kharel. NAC’s share of the market is less than 4 percent, he added.

Moreover, the carrier’s share of the tourist market hit an all-time low of 2.3 percent last year. It slipped to the 14th spot among the 29 international carriers serving Nepal. NAC currently possesses two ageing Boeing 757s, and it has had to dump many of its lucrative routes due to lack of aircraft.

Tuesday’s loan accord to buy aircraft follows the Cabinet’s go-ahead to revive NAC’s aborted purchase agreement with Airbus. The previous agreement was cancelled under orders from the now-defunct Public Accounts Committee’s (PAC) after it became engulfed in controversy over procedural issues.  The NAC board had decided on October 26, 2009 to purchase two aircraft from Airbus to expand its international fleet. Subsequently, the Supreme Court ruled that PAC’s order constituted interference in NAC’s matters, and that it was illegal.