Nepal Airline’s loan negotiation in limbo

Kathmandu, June 1

The lenders have asked Nepal Airlines Corporation (NAC) — the national flag carrier — to submit valid documents of aircraft order from its supplier AAR Corp before they can issue any loan.

“During the loan negotiation, the lending institutions asked for legal documents, which NAC has yet to submit,” a high-level source at NAC said. The government-owned financial institutions — Employees Provident Fund (EPF) and Citizen Investment Trust (CIT) — are going to provide loan for two wide-body aircraft.

NAC is going to purchase two wide-body aircraft from the US-based leasing company AAR Corp. The supplier has been selected through global bidding as the manufacturer, Airbus, did not take part in the bidding that concluded in mid-January this year. NAC has already sent the commitment fee worth $1 million to the supplier.

However, the national flag carrier has not submitted the valid papers of the aircraft order from its supplier as sought by the lenders. This is why NAC’s loan negotiation has prolonged.

NAC claims that the supplier has already placed the order for the aircraft with the manufacturer Airbus. However, lenders have said that they need to see valid documents to verify the claim.

NAC’s Managing Director Sugat Ratna Kansakar was not available for comment despite repeated attempts by The Himalayan Times.

As per the agreement with AAR Corp, NAC was supposed to send money by the first week of May. However, the payment has been delayed due to prolonged loan negotiation with EPF and CIT.

NAC is going to send 35 per cent or around Rs eight billion out of the total cost of around Rs 22 billion to the supplier as the first instalment. During the initial negotiation, EPF and CIT were both willing to provide Rs 11 billion loan each at nine per cent interest with payback period of 15 years.

The Cabinet has already decided to extend government guarantee for NAC to obtain the loan. The NAC board, chaired by secretary at Ministry of Culture, Tourism and Civil Aviation, had selected agent company AAR Corp as it had quoted the lowest price to supply the aircraft.

NAC, in its tender document, had sought second-hand aircraft that has been flown for only up to 1,000 hours, but AAR Corp had proposed to supply new aircraft at $104.8 million each. NAC is planning to send payment in two instalments —

Rs eight billion and Rs 14 billion in two instalments.

AAR Corp has offered to deliver first aircraft by September 2017 and second by March 2018, but delay in obtaining the loan may affect the delivery of the aircraft on scheduled timeframe, as per NAC officials.