The Cabinet on Thursday agreed to act as a guarantor for a loan that the Nepal Airlines Corporation (NAC) plans to take out to finance two long-range Airbus A330-200 jets.

The decision to stand surety allows the national flag carrier to secure credit of Rs25 billion from potential lenders. “We are in discussion with the Employees Provident Fund (EPF) for the loan,” said Sugat Ratna Kansakar, managing director of the NAC. “The credit deal will be finalised within 3-4 days.”

The EPF had already sent a letter of intent to the NAC to finance the project. Kansakar said that the lender is likely to provide the loan at an annual interest rate of 9 percent.

On April 8, the NAC signed the final purchase agreement for two long-range jets from the US-based AAR Corp, making its decade-old plan to acquire wide-body aircraft to expand its network beyond Asia a reality. The $209.6-million contract marks the largest-ever jet purchase deal in Nepal’s aviation history.

As per the agreement, the AAR Corp would supply aircraft by the second quarter of 2018, instead of the first quarter deadline stipulated earlier. Initially, the supplier had pledged to provide the first aircraft by September 2017. The national flag carrier has already transferred $1 million as “commitment fee” to the AAR Corp.

The jet contact is worth nearly Rs22 billion. Kansakar said that the additional amount it plans to borrow would be used for preparing crew members like pilots and engineers and buy necessary spare parts.

As per the agreement, the NAC will release 35 percent of the total aircraft cost as pre-delivery order fee within 28 days of signing the contract. The remaining amount should be paid after delivery of every aircraft.

The NAC had purchased two Airbus A320-200 aircraft by borrowing Rs10 billion from the EPF in 2015. Separately, it has also borrowed around Rs4 billion of loan from the China EXIM Bank to procure Chinese aircraft. If the Rs25 billion loan deal is sealed, the corporation’s total loan go up to Rs 39 billion.

The annual interest rate of the total loan would be around Rs3.5 billion, nearly one-third of the NAC’s total annual income. NAC’s ground handling service at the Tribhuvan International Airport is a major moneymaker, generating more than Rs3 billion in revenues annually. Former NAC officials warned that the corporation could be forced into bankruptcy if it failed to operate efficiently and professionally. The government has begun the process to induct a foreign management strategic partner for the NAC.

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 the wide-body aircraft. 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 aintenance crew 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.