Nepal Airlines Corporation (NAC) will be buying new planes for the first time in 26 years. On Thursday, the governments of Nepal and China signed a grant and concessional loan agreement worth Rs 6.67 billion (408 million RMB) to procure six aircraft. Two of the planes will arrive within three months and join the carrier’s domestic fleet which now consists of one vintage Twin Otter.
As part of the accord, China will provide a 58-seater MA60 and a 19-seater Y12e worth Rs 2.94 billion as a gift and a soft loan of Rs 3.72 billion to buy one MA60 and three Y12e planes. The last time the venerable flag carrier procured aircraft was in 1987. Meanwhile, it has two Airbus A320s on order for its international fleet, the first of which will be delivered in 2015.
The Chinese deal consists of three separate agreements-framework agreement on provision of concessional loan assistance, economic and technical cooperation agreement for grant assistance and government concessional loan agreement. The repayment period of the soft loan from the Export-Import Bank of China to NAC is 20 years. It carries an annual interest of 1.5 percent. NAC has been given a grace period of seven years which means it will not have to start paying back the loan till then.
Finance Secretary Shanta Raj Subedi and Ambassador of China to Nepal Wu Chuntai signed the agreement on behalf of their respective countries.
The Cabinet on November 14 had given its go-ahead for the government to sign loan and grant agreements with China to procure six aircraft for the national flag carrier.
Normally, the government funds public entities at an interest rate of 6-8 percent. “The interest rate for NAC has not been fixed,” said NAC Managing Director Madan Kharel. “There will be discussion on the issue soon.” Kharel added that the package included spares parts and training for pilots and technicians.
Finance Secretary Subedi said Thursday’s agreement would help NAC consolidate its domestic market share. “We expect that air services will be enhanced in most remote destinations and also promote the country’s tourism,” Subedi said.
He also directed the management to form a conducive business plans to lift NAC’s financial condition. “The corporation now has to focus on commercializing its business by providing quality service,” he added.
Meanwhile, Chinese Ambassador Chuntai said they would be providing an MA60 and a Y12E aircraft in the next three months. He expressed his hope that the aircraft would help improve NAC’s business. “It could play a vital role in enhancing the tourism industry besides promoting the airlines business.”
The deal, according to the NAC, will help it regain its lost glory and market share. In the domestic market, NAC is way behind private carriers in terms of market share.
It plans to increase its share of the domestic market to 40 percent from the present 3 percent after the new planes arrive. “We have already prepared a detailed business plan to operate the aircraft so that we can receive the optimum benefits,” Kharel added.
NAC plans to operate the aircraft on long-haul sectors, including the lucrative Himalayan excursion Mountain Flight, and a number of tourist destinations.
On October 22, the Civil Aviation Authority of Nepal (CAAN) issued type certificate to Chinese-made MA60 aircraft, allowing the plane to enter the Nepali skies for the first time for civilian transport. However,
On November 29, 2012, NAC signed a commercial agreement with AVIC International Holdings, a Chinese government undertaking, to procure the six aircraft. On August 7, 2011, NAC wrote to the Finance Ministry, requesting it to purchase eight aircraft under foreign grants. In November 2011, the ministry requested China to provide aircraft either in grant or under soft loans. The Chinese side responded positively, expressing readiness to provide some aircraft in grant and some under soft loans.