State-owned Employees Provident Fund (EPF) has formally agreed to provide a loan of Rs12 billion to Nepal Airlines Corporation (NAC) to help the national flag carrier purchase two wide-body Airbus aircraft.

An agreement to this extent was signed between the two state-owned entities on Sunday.

EPF will charge an annual interest of 9 percent on the credit, NAC Spokesperson Rabindra Shrestha said. However, the payback period of the loan amount could not be confirmed. NAC is also in the process of signing another Rs12-billion loan agreement with state-owned Citizens Investment Trust. “The agreement will be signed soon,” said Shrestha.

Both the lenders will initially provide Rs4 billion each to NAC as first instalment of the loan to cover advance payment that needs to be made to the aircraft supplier.

NAC has signed a $209.6-million contract with US-based AAR Corp to buy two long-range Airbus A330-200, making it the largest ever aircraft purchase deal in Nepal’s aviation history. The two jets are expected to arrive in Nepal by the second quarter of 2018.

As per the sales and purchase agreement signed with AAR Corp on April 7, the national flag carrier had to pay 35 percent of the total aircraft cost, or Rs8 billion, as pre-delivery order fee within 28 days of signing the contract. 

However, NAC missed the May 5 payment deadline due to delay in signing of loan agreements.

The process of signing loan agreement was delayed despite the decision made by the government to act as the guarantor of the credit. NAC is pledging two new Airbus aircraft that it is purchasing as collateral to obtain the credit from the two state-owned entities. 

Earlier, NAC had planned to borrow money from the EPF only. However, the airline company’s board directed the management to obtain credit from the two state-owned lenders in order to spread out its debt.

NAC already owes EPF Rs10 billion which it borrowed in 2015 to buy two Airbus A320-200 aircraft.

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 wide-body aircraft to its fleet. It has also announced plans to increase flight frequencies to key destinations like Kuala Lumpur, Hong Kong and Doha