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Nepal Airlines to conduct first audit in six decades

- SANGAM PRASAIN, Kathmandu

Mar 14, 2019-

Beset by financial stress and prompted by government plans to bring a strategic partner, Nepal Airlines Corporation is preparing to conduct a financial audit for the first time in more than six decades. The national flag carrier on Sunday invited proposals from consultants to prepare a due diligence audit with the final submission deadline set for April 9. 

The corporation said the objective of the audit, that will assess the market value of its assets and liabilities up to mid-January 2019, was for the purpose of capital restructuring.

Last year, the corporation sought Rs20 billion from the government through the Tourism Ministry to raise its paid-up capital to support its financial restructuring. The Finance Ministry rejected the proposal and said that it would not give a penny until the corporation finds a partner or goes for divestment.

“The corporation has never conducted a due diligence audit. No one knows its financial position, the value of its moveable and immovable assets, and the risks associated with its business,” said Madan Kharel, executive chairman of the corporation. “Three to four months from now, we will know our actual financial status.” Kharel said that the audit was being conducted not only for a single purpose. “The audit will also enable us to prepare our future business strategies.”  

Last December, the late tourism minister Rabindra Adhikari had told the parliamentary Public Accounts Committee that a due diligence audit would allow them to ascertain how much the corporation is worth before going for a strategic divestment in the ‘immediate near future’. Adhikari was killed in a helicopter accident in Taplejung last month.

The government plans to sell shares in the national flag carrier or induct a foreign strategic partner in it. “The national flag carrier has become too unwieldy to handle. It will not move ahead if we don’t act immediately,” he had told lawmakers. “As the strategic partner will also bring investment, we have to produce facts about the actual financial status of the corporation.”

Due diligence is an investigation or audit of a potential investment or product to confirm all facts, such as reviewing all financial records. 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 the corporation into a company.

Following the acquisition of two Airbus A320s in 2015, the corporation acquired two more long-range A330s last year. With the acquisition of Airbus and Chinese aircraft, the carrier’s long- and short-term loans stand at Rs41.73 billion, and it owes more than Rs3.66 billion in interest annually.

The government has been considering privatizing the airline or bringing in a strategic partner for the last decade. In 2007, it initiated a plan to hand over its 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 invited experts from Air France under a programme to improve management, and they handled most of the managerial positions until 1973. In 1972, the airline acquired its first jet, a Boeing 727, in cooperation with the French carrier.

Nepal Airlines topped the list of carriers with the highest number of passenger carriage in 2018. It flew 491,979 passengers, up 26.69 percent year-on-year. The growth has been attributed to the increased capacity of the airline after it added two 274-seater wide body Airbus A330 jets into its fleet last year.

The international passenger market share of Nepal Airlines reached 11.32 percent in 2018.

Published: 14-03-2019 08:34

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