Nepal | October 14, 2019

NAC needs to be run as an autonomous firm without having to follow Public Procurement Act

• Rendezvous

Umesh Poudel

Since long Nepal Airlines Corporation has been facing criticism over its working style and the continuous loss that it has been incurring. Earlier, Minister for Culture, Tourism and Civil Aviation Yogesh Bhattarai had formed a task force to look into the issues plaguing national flag carrier and submit necessary suggestions. The
report has suggested privatisation of the ailing carrier by divesting 49 per cent of its shares to domestic and foreign investors to make it more competitive. It has also suggested that NAC launch aggressive marketing strategies in the aviation sector. Against this backdrop, Umesh Poudel of The Himalayan Times caught up with former tourism secretary and coordinator of the task force, Sushil Ghimire, to know more about the issue. Excerpts:

Interview with Sushil Ghimire. Photo: Naresh Shrestha /THT

How would you gauge the current situation of NAC? Also, the government has been urged time and again to privatise NAC, however, it has not been done. Why is it so?

The government has, in the course of time, formed many committees to seek ways to transform NAC into a better institution. Some reports say that the company can be transformed by operating it under the public-private partnership (PPP) model, some have suggested to bring in a strategic partner while others have recommended privatisation of the company.

Our report has also suggested the PPP model for NAC with better management than the existing one. Prior to preparing our report, we studied all the previous reports related to NAC and also assessed its financial health over the years. We noticed that NAC wasn’t facing any loss in the past and it was only in the recent years that it has been incurring losses. We also noticed too much of politicisation within the airline. The other striking factor was that instead of raising revenues, the purchase of two narrow-body and two wide-body aircraft has actually increased its losses. At present, the equity and loan ratio is very high and the cumulative loss has soared due to weak management. However, unlike other public enterprises which have become defunct, NAC has managed to bide by the times and is still able to pay its staffers.

Another factor causing loss to NAC are the Chinese-made aircraft that it has acquired. There was a time when NAC used to fly to Europe and Japan too and some Middle East airline companies like Etihad and Flydubai had not even been established. But now NAC is literally on the verge of collapse and those Middle East airlines are flying high. To be honest, even if the government injects funds into NAC, it will not be able to compete with such companies for a long time. The report has, thus, suggested that the government needs to sell 49 per cent of its stake in NAC and allow it to operate autonomously.

The study committee has recommended operating NAC under the PPP
model. However, 51 per cent shares will still be held by government? Isn’t it possible to completely privatise the company?

To get a better understanding, we need to first discuss about the situation when Nepal Telecom (NT) was being converted to a PPP model company. At the time, the government had planned to issue 10 per cent shares of NT to the public. Officials of the Finance Ministry then decided to offer the shares on auction with minimum bidding price of Rs 600 per share and people had even bid Rs 2,500 for a share of NT. This was a wrong decision, as shares being offered by NT were not subscribed fully due to the high price. Moreover, since the government is still the majority shareholder of NT, it is still functioning like a public entity and its performance has not been as expected. So, we have suggested the government not to follow the same method as that of NT when selling its stake in NAC. The carrier needs to be run as an autonomous company without it having to follow the Public Procurement Act.

If the government follows our recommendation, then Nepali investors like Nepal Telecom, Employees Provident Fund, Citizen Investment Trust and the general public will hold around 65 per cent shares and the remaining will be held by a strategic partner. We have also clearly mentioned that the chairman of NAC must be a Nepali national but the chief executive officer must be a foreigner so that the day-to-day functioning of the company can be bolstered. The government should also make sure that it does not interfere with any operational or management
decision of NAC. If NAC is allowed to function as an autonomous company, it will surely start churning profits soon.

Why is NAC lagging behind while other firms that were recently set up have started making profits? Where do you see the lapses in government undertakings?

The main reason why public enterprises are facing losses is because of too much interference by the state and political parties and also due to unskilled employees at the decision-making level. I think the government needs to appoint capable people and allow such enterprises to run independently. Public enterprises have the required infrastructure and fixed assets but lack a clear roadmap on how to utilise them. NAC, I would say, is in the current situation because of political interference with nepotism playing a key role in appointments. There have been people appointed in high-level management positions at NAC who neither had the required skill-set nor the mindset to manage the company. Another problem was that a few years back there was no recruitment in the middle management positions and this void further hit the company. The situation was such that there was shortage of staff at the middle level but there was over-staffing at the lower positions, as ministers saw NAC as a fertile ground to get their cadres appointed. Even now we have seen that there is total lack of coordination among the various levels of staff at NAC and that is why we have strongly recommended the government to bring in a strategic partner who can streamline the company’s management and operations.

Will the government divesting some of its shares at NAC to the private sector and operating it under the company modality ensure NAC’s growth?

The airline sector across the globe on average has been doing quite good business but some major companies in our neighbouring nations have been facing losses. For instance, Air India and Thai Air have been facing losses and the respective governments have been injecting funds into them. This is because the airline business has a multiplier effect on the economy. Even the Middle East governments provide subsidies on air turbine fuel to their airlines, hence these companies have been generating profit. So, the government providing funds to NAC should not always be taken as a negative. I don’t mean to say that the government should always bail out NAC but when required at times it could assist the company as per need. However, to overcome this perennial mismanagement problem, a strategic partner with a wide network should be brought in to NAC. Injecting funds is not the sole or a long-term solution. And NAC is not in such a bad position as projected by the media. So, we have urged the government to bring in a strong leadership with long-term vision to help NAC return to its glory days.

There has been talk that NAC is in a more dire situation after it purchased the wide-body aircraft. Is it true?

It is true that the government and concerned stakeholders did not hold enough discussions and there was practically no planning when purchasing the wide-body aircraft. The existing narrow-body planes were sufficient to fulfil the demand for existing destinations like Delhi, Bangkok, Dubai and Singapore, among others. So, when there were plans to acquire the bigger planes the NAC management should have finalised the long-haul destinations before taking delivery of the planes. What was even more glaring was the fact that NAC initially did not even have the pilots to fly the wide-body aircraft. This speaks of gross negligence and mismanagement. And that is why NAC has been incurring huge losses today.

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