Editorial
Minority stake
While NAC needs a strategic partner, the idea to sell a majority stake requires more debateNepal Airlines Corporation’s (NAC) quest for a strategic partner comes at the right time. As the national airline seeks to expand its fleet, a strategic partner with expertise in the airline sector can bring in both cash and sound management practices. Ever since NAC acquired its two new A320, the government has asked the public corporation to turn around its management by inducting a strategic partner.
In July 2015, NAC issued a request for proposal (RFP) for a management partner for revamping its management. The partner was to be given the charge of key departments, including finance, human resources, operation and engineering. A few months prior to the RFP, Airbus and Lufthansa had submitted proposals to revamp NAC’s management. After the RFP, 21 foreign firms, including Lufthansa Consulting and Airbus, submitted letters of intent to provide world-class management consultancy services to NAC.
In line with the RFP, in the first phase, NAC had plans to conduct a gap analysis to identify its shortcomings. In the second phase, the successful bidder would take over NAC’s management, leading to the consultancy firm appointing key people like chief executive officer, chief financial officer and chief marketing officer. However, the plan fell apart after the Finance Ministry showed reluctance to fund the project.
But this week, news broke that NAC’s Managing Director Sugat Ratna Kansakar is in Dubai holding informal stake sale talks with a Middle Eastern airline, whose executives had reportedly approached Kansakar in Kathmandu for buying stakes in NAC.
“The government has mandated NAC to find a strategic partner,” Kansakar was quoted by the Gulf News as saying during a press conference in Dubai on Monday. “The Nepal government could sell as much as 51 percent of the airline to Nepali or foreign investors and retain minority ownership. A majority foreign ownership will not change the airline’s status as Nepal’s flag carrier.” While Kansakar’s initiative is welcome, his comment on the prospect of selling majority stakes appears rushed. It also goes against the trends in the aviation sector and the current health of NAC that does not require it to relinquish majority stakes.
NAC is making reasonable profits for an airline of its size. Even without selling majority stakes, it can benefit from the cash injection and expertise of a strategic partner like Emirates or Etihad. In fact, Gulf airlines have been on an expansion spree, purchasing stakes in ailing airlines across Europe and Asia. In 2014, Etihad bought a 49 percent stake in Alitalia, the Italian national carrier that had been suffering from consecutive losses and bad management.
For now, pursuing a sale of a minority stake—up to 49 percent—to one of the Gulf airlines that has both the expertise and financial resources appears to be the right thing to do. The only caveat worth mentioning is that the government should have no say in appointing top managers. Needless to say, they should be appointed through a competitive hiring process.