NAC flying into controversy

Kathmandu, April 26

Nepal Airlines Corporation (NAC) — the national flag carrier — may be flying into a storm of controversy as it seeks to expand its international fleet.

The NAC started aircraft procurement process based on the letter of intent (LoI) provided by the Employees Provident Fund (EPF) — a government-owned financial institution. However, NAC has not started loan negotiation with EPF even as the national flag carrier has to send the first instalment of payment of around Rs eight billion to AAR Corp — the supplier — by the first week of May.

This is because the lender has put forth some conditions to provide the credit in its LoI to the national flag carrier, which include government guarantee, prevailing market rates, valid documents of the order to the manufacturer, among others.

Though the Cabinet meeting a few days ago had decided to provide guarantee from the government to NAC to obtain the loan to purchase the aircraft, the contract that NAC signed with AAR Corp to supply two wide-body aircraft is not strong in itself. NAC is gearing up to transfer billions of rupees in advance to the supplier without any bank guarantee from the latter, which is required as per the public procurement law of the country.

Krishna Prasad Acharya, administrator of EPF, said that NAC has to submit all the necessary documents while obtaining loan. But NAC is reportedly facing difficulties in submitting the valid documents of order to the manufacturing company — Airbus — from its supplier.

“AAR Corp has not placed any order with Airbus so far,” a high-level source at NAC told The Himalayan Times, seeking anonymity.

AAR Corp, which was selected through global bidding, is an agent company because the manufacturing company did not take part in the bidding. It is reported that the supplier may place the order with the manufacturer only after the fund is transferred and there is no certainty that aircraft will be delivered within the stipulated time.

As it will be difficult to obtain loan as per the conditions of the EPF, Managing Director of NAC Sugat Ratna Kansakar is said to be seeking funds from foreign countries citing the government guarantee and safe lending option to the international borrower. He has also been trying to convince the government that the interest rate of the foreign loan will be substantially low as compared to local lenders.

One of the fund management companies based in California of the United States — Amazon Venture — is said to have offered loan at one per cent interest rate per annum to the national flag carrier. However, ignoring this proposal, NAC has started preliminary discussions with Sury JMK Investment Kathmandu and its foreign partner company RCR (ReCycled Refuse International Ltd) Channel Island, which is willing to provide credit at three per cent, as per the NAC source.

All these developments in the aircraft purchase have raised questions about the intention of NAC management.