Money
Ministry asks for Rs20b to boost NAC’s capital
The Tourism Ministry has sought Rs20 billion from the government to raise the paid-up capital of Nepal Airlines Corporation (NAC) to support its financial restructuring plan. The NAC board recently decided to boost the investment capital of Rs370 million which has remained unchanged since its establishment in 1958.The Tourism Ministry has sought Rs20 billion from the government to raise the paid-up capital of Nepal Airlines Corporation (NAC) to support its financial restructuring plan. The NAC board recently decided to boost the investment capital of Rs370 million which has remained unchanged since its establishment in 1958.
“We have proposed to the government to issue fresh equity shares to jack up the corporation’s paid-up equity capital to Rs20 billion,” said Buddhi Sagar Lamichhane, joint secretary at the Tourism Ministry.
The government has been working to induct a strategic partner in the corporation, he said. “Towards this end, we have been planning to increase the capital,” he said, adding that the potential infusion of cash in the form of equity by the government would be a positive move to speed up the process of inducting a strategic partner.
Currently, the government is assessing the proposal of Lufthansa Consulting, an independent subsidiary of German-based Lufthansa Group, to become a strategic management partner in NAC.
It has proposed a fee of Rs688.67 million for the services it will be providing in three different phases—diagnostic assessment, restructuring plan and implementation phase.
Lufthansa Consulting has said that it can take charge of NAC for three years, and that the contract can be extended for two more years. “After the management contract, we can induct a strategic partner or privatize the airline to improve its service standards,” said Lamichhane. “Therefore, a sound financial health is necessary to ensure its survival.”
With numerous cases of delays and cancellations which have eroded NAC’s image, the government will sooner or later have to make a call because the national flag carrier is running out of options, he said. “The problem is likely to become more visible after the induction of wide-body jets as its debt will reach up to its neck, and a small slip-up could mean big financial losses.”
NAC currently possesses a fleet of two ageing Boeing 757s and two Airbus A320 aircraft to serve the international sector. It has put one of the two Boeings up for auction. NAC received two Airbus A320 jets in 2015 and has two long-range Airbus A330-200 jets on order. They are scheduled to arrive by the second quarter of 2018. Its domestic fleet consists of three vintage Twin Otters and four Chinese-made aircraft.
According to the annual performance review of public enterprises, in 2015-16 NAC earned Rs9.19 billion, one-third of it from ground handling charges from international airlines.