Govt decides to purchase six Chinese aircraft

KATHMANDU, NOV 04 -

In a major development in the plan to expand domestic fleet of the ailing Nepal Airlines Corporation (NAC), the Ministry of Culture, Tourism and Civil Aviation has decided to procure six aircraft from AVIC Holdings, a Chinese government undertaking.

A bilateral discussion between top government representatives from Nepal and China on Friday agreed in principle for the deal. “We have agreed in principle for aircraft purchase,” said Yajna Prasad Gautam, secretary at the ministry.

Gautam said once the Cabinet gives its go-ahead for the deal, there will be three agreements—a commercial agreement to be signed by NAC, a loan agreement with China’s EXIM Bank to be signed by the Finance Ministry and an overall government-to-government agreement.

Of the six proposed aircraft, the northern neighbour is ready to provide a 19-seater Harbin Y-12e and 58-seater MA60 turboprop in grant, while other four will be provided in soft loans, Gautam said.

If things go as planned, the national flag carrier will get two aircraft in grant in the first instalment within the end of January, 2013.

The Chinese government is also positive to provide a five-year grace period for the loan repayment as requested by the Nepali side, according to Gautam. “If the proposal is Okayed by the Chinese government, it will enable NAC to repay the loans in instalments after five years to the EXIM Bank.

“We are currently discussing the matter and if China responds positively to Nepal’s request, it will be a huge relief for NAC to improve its current financial health,” said Gautam. “The grace period on loan repayment will provide NAC to fully enjoy earnings for at least five years.”

The cost of the proposed aircraft has also been finalised. The four aircraft—three Y-12e and a 58-seater MA60—will cost $35 million, including the cost for spare parts and pilot training, among other combined packages. Without the packages, the cost has been calculated $29 million for the four aircraft.

With a limited number of aircraft costing its market share, NAC has been trying to expand its fleet. On August 7, 2011, NAC had written a letter to the Finance Ministry for purchasing aircraft in foreign grants.

It had requested the government to purchase eight aircraft, following which the Finance Ministry requested China in November 2011 to provide aircraft either in grant or in concessional loans. In response, the Chinese side expressed readiness to provide some aircraft in grant and some under soft loans.

Then, a technical team of NAC visited AVIC International, that manufacturer Y-12 and the MA60 aircraft, to examine whether the planes were appropriate for Nepal. The team had reported that the airplanes were fit for the Nepali skies.

Subsequently in December 2011, the Chinese government formally wrote to the Finance Ministry, saying three aircraft would be given to NAC in grant and other in soft loans.

However, the process landed in controversy after it came in the Commission for Investigation of Abuse of Authority’s radar over complaints about irregularities.

The government revived the plan on October 17, 2012, under its Immediate Governance and Economy Reform Action Plan 2012.

The Prime Minister’s Office (PMO) directed two ministries—civil aviation and finance—to procure two aircraft for NAC’s international and six for domestic fleets within six months. The government also warned that failure to conclude the process would result in removal of officials concerned from their responsibilities.

As of now, NAC holds a mere 3 percent market share in domestic and 4.8 percent in international operation due to its limited number of aircraft. Out of six Twin Otter planes NAC has, only three are in operation. Canada had given in grant the existing Twin Otters to NAC some 40 years ago.

Source: The Kathmandu Post