Nepal Airlines Corporation (NAC), with a history of 52 years, had faced quite a few ups and downs in the past. About eighteen months back, NAC did hit the media headlines with the announcement of an ambitious fleet expansion programme and did bring excitement to all concerned, especially tourism industry, by near-future-vision of taking our national flag carrier even to New York and Australia. Many raised eyebrows and few policy-makers, bureaucrats and intellectuals with unnecessarily high degree of pessimism criticized NAC management for raising the hopes of the people in a “no-hope-country”.
In tune with the expectations of the public at large, NAC management, therefore, intentionally adopted a “paradigm-shift” approach to expedite this highly publicized aircraft purchase process. It seems this approach of getting development work done on war-footing is being misrepresented and misunderstood by many. The result is the present fiasco and deadlock like situation, which is delaying this “ambitious” project, which is “the” only life-saving medicine for NAC. It must be emphasized here that NAC selected the lowest priced offer of Airbus among only two responsive offers, and NAC can easily prove beyond doubt that this fully transparent decision is totally impartial.
As to the contention that management improvement should precede fleet expansion, common sense dictates that even with improved management matching European and Japanese standard, NAC’s revenue will increase only marginally, as the two aircraft are already utilized to maximum permissible limit and seat factor reaching 73.3% in the international sector in spite of cut-throat competition. Moreover, unlike other 35 state enterprises, NAC is already competing directly with global giants like Thai Airlines, Silk Air, Qatar Air, Jet Air and it will be doing injustice to NAC workforce if one concludes that those 35 enterprises have better workforce than NAC, as NAC is still in fairly good financial health.
Regarding the process followed by NAC, it could be proven that not a single major fundamental principle or criteria stipulated in the Public Procurement Act 2063 is compromised. On the contrary, in the month of April 2009, NAC’s financial rule was amended to make sure that it is in tune with the Act. In fact, earlier financial rule allowed management to directly negotiate with any aircraft manufacturer and sign the contract agreement without any competitive bidding. It is to be noted that all of the existing three dozens state-owned-enterprises have their own financial rules, which allow them to deviate from Public Procurement Act 2063 to a certain extent. NAC cannot be made an exception.
NAC has stipulated the provision of lock-up-money in the financial rule itself and, accordingly, even a separate budget is allocated in the current fiscal year 2066/67 budget of NAC. As the lock-up-money concept is never used in any other kinds of procurement, it is understandable that many were shocked and surprised at payment of US$750,000 before signing the contract agreement. In fact, both Boeing and Airbus companies have indicated in their sealed offers the compulsory requirement of lock-up-money and it is a universally accepted norm in aviation industry. The NAC management and entire workforce are, therefore, totally frustrated, as the public debate is zooming more into US$0.75 million lock-up-money rather than focusing on NAC’s estimated revenue increase from existing US$75 to about US$170 million in three years after the acquisition of first new aircraft. The other extensively debated issue is the funding for aircraft purchase. In all aircraft purchase deals done by NAC in the past five decades, overseas funding was always adopted. This time also initially NAC talked with both Boeing and Airbus assuming that they will help in external funding. Only sometime in the month of March 2009, the idea of getting loan from Employees Provident Fund (EPF) was considered. This prompted NAC to actively pursue for government guarantee to get Rs.10 billion from EPF. Two successive governments gave explicit assurance that government shall give guarantee to buy two “big” aircraft for NAC. Even the concerned Act was amended to facilitate guarantee by government. Obviously, assuming that EPF loan is a sure-shot affair, NAC went ahead with all activities on war-footing to ensure timely delivery of aircraft before NTY 2011 event, which, ironically, happened to be a prestigious campaign launched by none other than NAC’s sole owner the Government of Nepal (GoN).
The bottom line is that NAC wanted to move fast to increase production capacity by acquiring new aircraft so as to increase its’ market share in the Rs. 60 billion annual business. And to add spice to NTY 2011 event, NAC did move at jet speed until the act of paying lock-up-money to book slots for two aircraft. The semi-final act of signing contract agreement and final act of landing of one brand new shining aircraft at Tribhuvan International Airport are yet to materialize.
Kansakar is Executive Chairman, NAC
