The government’s plan to convert Nepal Airlines Corporation (NAC) into a company has moved a step ahead.

The Tourism Ministry has directed the management of NAC to formally begin the process of converting the state-owned national flag carrier into a company.

According to Ministry officials, the management has been directed to get the proposal approved by the board first.

“After the board’s approval, the Ministry will initiate the necessary process to convert the corporation into a company as per the Company Act 2006.”

The move is aimed at bringing in a foreign strategic partner at the NAC. According to Ministry officials, the Finance Ministry has recommended that the foreign strategic partner at the NAC be inducted following all legal

procedures.

It has recommended that while inducting the strategic partner, NAC will get the optimum benefit. In the last week of August, a meeting of high-level officials from the Finance and Tourism ministries and National Planning Commission had decided to go ahead with the plan to convert NAC into a company.

Under the Nepal Airlines Corporation Act, cooperation and services of any aviation agency of a foreign country can be obtained, if necessary, with prior approval from the government.

The Tourism Ministry has also sought Rs20 billion from the government to raise the paid-up capital of NAC to support its financial restructuring plan. The NAC board decided to boost the investment capital of Rs370 million which has remained unchanged since its establishment in 1958.

Following the acquisition of two Airbus A320s in 2015, the corporation acquired two more long-range A330s this year. With the acquisition of these wide-body jets, its loan amount has reached nearly Rs40 billion.

NAC has long been facing criticism for its failure to assure quality and efficiency.

The government has been considering privatising NAC or bringing in a strategic partner for the last decade. In 2007, it initiated a plan to hand over NAC’s management to a foreign strategic partner so that it could reform and rescue the troubled carrier. However, the plan fell apart.

In 1970, the then Royal Nepal Airlines Corporation (RNAC) had invited experts from Air France under a programme to improve 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.

The Finance Ministry has on different occasions informed the Tourism Ministry to induct strategic partners to improve the state-owned company’s overall system performance.

In September 2015, 21 foreign firms including Lufthansa Consulting and Airbus had submitted letters of intent (LoI) to provide world class management consultancy services to NAC. The carrier had asked for LoIs to improve its overall system performance by inducting a management consultancy service provider in the first phase, and handing over management in the second phase.

In March 2016, the Tourism Ministry had invited closed sealed requests for proposals (RFP) from reputed airlines in the US, the UK, France, Germany and Australia through their embassies in Kathmandu to bring a strategic partner in the national flag carrier. Lufthansa Consulting, an independent subsidiary of the Lufthansa Group, was the sole applicant.

Lufthansa Consulting had asked for a fee of Rs688.67 million for the services it would be providing in three phases. Subsequently, the Tourism Ministry asked the Finance Ministry for its input before submitting the proposal to the Cabinet for final approval.

The Finance Ministry could not figure out whether Lufthansa’s proposal amounted to privatisation or something else, and it decided to set up another committee to clear the confusion. The plan, however, hit a snag with a government formed committee asking NAC to explore ‘multiple modality options’ before sealing the deal. The committee had recommended studying possible modalities like lease contract, strategic partner with equity, strategic alliance with foreign airlines, lease contract and management contract.