Africa’s largest carrier Ethiopian Airlines has proposed to become a partner with Nepal Airlines Corporation (NAC). Last week, Ethiopian Ambassador to Nepal Asfaw Dingamo Kame met with Tourism Minister Rabindra Adhikari in Kathmandu and officially proposed to form a strategic alliance with NAC.

Ethiopian Airlines owns a fleet of 108 aircraft and serves 125 international and domestic destinations. It wants to join forces with NAC as part of its bid to establish multiple hubs beyond the African continent.

Ambassador Kame also met with Foreign Minister Pradeep Gyawali and discussed other possible areas of cooperation between Nepal and Ethiopia, including forming a bilateral consultative mechanism, and carrying out a parliamentary exchange programme.

The government is currently looking for a strategic partner for NAC that will help to take it forward. Minister Adhikari recently told Parliament that the national flag carrier needed to be revamped, and that the ministry was scouting for an appropriate foreign strategic partner.

Ambassador Kame told the Post that a detailed proposal from Ethiopian Airlines would arrive soon. “We need to sign an air service agreement first to form a partnership to invest in Nepal Airlines. We can also start with a code share agreement.”

Since Nepal and Ethiopia established diplomatic relations in 1964, the two countries have offered very little to each other. The pace of bilateral relations gained momentum after Ethiopia appointed an honorary consul in Nepal in 2015, he said.

Ethiopia has urged Nepal to open a residential mission in the capital Addis Ababa which also hosts the Secretariat of the African Union.

PLANS AFOOT

The government plans to convert NAC into a company before getting a foreign strategic partner. In September, the Tourism Ministry directed its management to formally begin the process of converting the state-owned carrier into a company.

According to ministry officials, the Finance Ministry has recommended that the foreign strategic partner be inducted following all legal procedures. It said that NAC should get the optimum benefit through the partnership.

Last August, a meeting of high-level officials from the Finance and Tourism ministries and the National Planning Commission decided to go ahead with the plan to convert NAC into a company. Under the Nepal Airlines Corporation Act, the 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 asked for Rs20 billion from the government to raise NAC’s paid-up capital to support its financial restructuring plan. The airline 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 Airbus and Chinese aircraft, the carrier’s loan has reached nearly Rs40 billion. This means that from this fiscal year, the corporation has to pay at least Rs2.5 billion in interest. Officials said that if NAC did not change its traditional marketing and service methods, it could go bankrupt as it is running low on cash.

“We have been hearing for a long time that the government is inducting a foreign strategic partner at NAC. The plan, however, has remained on paper only,” said Ashok Pokhrel, a tourism entrepreneur and former member of the NAC board. “But it’s not too late. The government should act promptly before the airline is put into financial stress.”

He said that the strategic partner could provide capital or let the company leverage its brand to give more exposure. “At a time when NAC has been facing criticism for its failure to assure quality and efficiency, a strategic partner, if it is a globally reputed company, can help the carrier to win business globally,” said Pokhrel.

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) 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.

In September 2015, 21 foreign firms including Lufthansa Consulting and Airbus submitted letters of intent (LoI) to provide world class management consultancy services to NAC. The carrier invited 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. The plan failed after the Finance Ministry refused to give money for such a management consultancy service. In March 2016, the Tourism Ministry invited requests for proposals (RFP) from reputed airlines in the US, the UK, France, Germany and Australia through their respective embassies in Kathmandu to become a strategic partner with the national flag carrier. Lufthansa Consulting, an independent subsidiary of the Lufthansa Group, was the sole applicant.

Lufthansa Consulting 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 hit a snag with a government 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.

Some government officials are of the view that the strategic partner should be inducted through a global competition. However, Ethiopian Airlines has proposed a government-to-government deal.