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Lufthansa applies to become NAC’s strategic partner

- SANGAM PRASAIN, Kathmandu

Apr 20, 2017-

The government’s call to rope in a long-term strategic management partner at Nepal Airlines Corporation (NAC) has received lukewarm response, as only one company, Germany-based Lufthansa Consulting, has taken part in the closed bidding.

The Tourism Ministry had sought closed request for proposals (RFP) from reputed airlines of five countries through the embassies of the US, the UK, France, Germany and Australia in Kathmandu to bring in a strategic partner at the national flag carrier. The deadline for submission of RFPs, sought in the first week of March, expired on Tuesday. 

Till the deadline, only Lufthansa Consulting, an independent subsidiary of the Lufthansa Group, has submitted the proposal, Buddhi Sagar Lamichhane, joint-secretary of the ministry, said.

Lamichhane informed that a committee would now be formed to study the proposal of Lufthansa. “Based on the report, the proposal to induct strategic partner will be tabled at the Cabinet for approval.” He said necessary discussions would be held with the Finance Ministry before the proposal is forwarded to the Cabinet. If the Cabinet deems Lufthansa’s proposal appropriate, the Tourism Ministry will initiate negotiations with the German company.

“Despite participation of a single company in the bidding, we can seal the deal with the company, as RFPs were sought directly through embassies,” Lamichhane said. “This implies the provisions of the Public Procurement Act will not apply to this deal.”

The ministry had sought closed RFPs as the government does not have any modality and legal clarity on induction of a foreign strategic management partner.

The parliamentary Public Accounts Committee (PAC) in March had also directed the government to induct a foreign strategic partner in NAC within three months. If the government’s plan to rope in a strategic partner at NAC goes through, it will be second such case in the state-owned airline company’s history.

In 1970, the then Royal Nepal Airlines Corporation (RNAC) had invited experts from Air France under a programme to improve the management, and they handled most of the managerial positions until 1973. In 1972, RNAC acquired its first jet, a Boeing 727, in cooperation with the French carrier.

Since the expiry of the contract with the French company, the government has been trying to find a strategic partner for NAC to improve its deteriorating performance amid recurring cases of corruption.

Finally in 2015, the German company, which submitted its RFP on Tuesday, expressed interest to partner with NAC. 

At that time, Lufthansa Consulting had made a detailed presentation at the Finance Ministry to provide consultancy and management services to improve the performance of NAC and enhance its operational efficiency. It submitted the proposal to the Prime Minister’s Office in March 2015. 

During that time, Lufthansa Consulting had proposed providing services in three phases. In the first phase, the company had proposed to conduct a gap analysis to identify the airline’s shortcomings. The company had sought one month’s time to conduct the gap analysis and a fee of 295,000 euro to cater the service.

In the second phase, the company had proposed to take over NAC’s management for a period of one year and appoint its own people to the top management posts like chief executive officer, chief financial officer and chief marketing officer.

In the third phase, the German company had said it would hand over the management to NAC. However, the plan fell apart after the Finance Ministry refused to fund the project. The plan to induct a strategic partner was then revived in March, following which a committee was formed to recommend partnership modalities. The committee had suggested that NAC take on a reputed international carrier listed on a major stock exchange as a partner. 

Under the new partnership modality, the Tourism Ministry has suggested that both NAC and the partner company share gross profit. The ministry has also said the partnership could be extended for a maximum of 10 years and the partner could be given charge of key areas like operations, management, engineering or technical and financial. However, the partner company will not be able to claim stake in revenue generated through NAC’s ground handling services. To ensure this, NAC will have to separate its flight operations and ground handling services before taking on a foreign strategic partner.

NAC’s ground handling service at TIA is a major moneymaker, generating more than Rs3 billion in revenue annually, which is nearly a third of its total receipts. 

Published: 20-04-2017 09:07

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