Lufthansa Consulting, which has applied to become a strategic management partner in Nepal Airlines Corporation (NAC), has proposed a fee of Rs688.67 million for the services it will be providing in three different phases.

A copy of the proposal obtained by the Post shows that for the first phase of the partnership known as ‘diagnostic assessment’ and the second phase known as ‘restructuring plan’, Lufthansa Consulting has proposed a fixed charge of Rs246.75 million. The first phase will last for four weeks and the second phase will last for five months.

Likewise, in the third phase, which is the implementation phase, the proposed fee for its service is Rs338.62 million. The third phase will last for three years, according to the proposal. 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.

Income tax on the fees will be Rs103 million. As per the proposal, payment for the third phase will be based on improvements in profitability over the baseline. Lufthansa Consulting is an independent subsidiary of German-based Lufthansa Group.

A seven-member committee led by Tourism Joint Secretary Buddhi Sagar Lamichhane had submitted an evaluation report to the Tourism Ministry with the recommendation that Lufthansa Consulting was appropriate as a strategic management partner in NAC.

“We have planned to send the proposal to the Finance Ministry next week for its inputs and to hold broad discussions over the financial arrangement,” said Lamichhane. “Then the proposal will be tabled at the Cabinet for its final okay.”

He added that a green light from the Cabinet would allow the Tourism Ministry to begin talks about financial and technical aspects. “After that, 10-12 experts from Lufthansa will join NAC for at least six months,” said Lamichhane. “The proposed payment is huge; but more than that, NAC needs dire restructuring. It cannot continue in the current fashion if two long-range Airbus A330 aircraft are added to its fleet,” he said. 

The ministry said that the partner could be given charge of key areas like operations, management, engineering or technical and financial. However, the partner company will not get a share of the revenues generated through NAC’s ground handling services.

NAC will have to separate its flight operations and ground handling services before taking on a foreign strategic partner so that complications do not arise. NAC’s ground handling service at Tribhuvan International Airport is a major moneymaker, generating more than Rs3 billion in revenues annually, which is nearly a third of its total receipts.

Last March, the Tourism Ministry had invited closed requests for proposals (RFP) from reputed airlines in the US, 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.

The parliamentary Public Accounts Committee (PAC) had also directed the government in March to induct a foreign strategic partner in NAC within three months. If Lufthansa Consulting gets the contract, it will be the second strategic partner in the state-owned airline’s history.

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

Since the expiry of the contract with the French company, the government has been trying to find a strategic partner to improve NAC’s deteriorating performance amid recurring cases of corruption.