The national flag carrier Nepal Airlines Corporation (NAC) has recently been in the limelight. The government-owned airline company is in the process of buying two new wide-body Airbus 330 aircrafts for its international flights. Meanwhile, NAC is also looking to appoint a strategic partner in a bid to improve institutionally and strengthen its position in both domestic and international segments. The corporation has also added some new Chinese aircraft to its domestic fleet which it purchased with soft loans provided by the government of China. After ailing for many years NAC earned a profit of Rs 190 million in the first six months of the current fiscal year. Sugat Ratna Kansakar has assumed various leadership positions at NAC since 2008. Now Managing Director of the corporation, he has been focusing his efforts on purchasing new planes and improving the institutional capacity of the corporation which was once on the brink of bankruptcy. Kansakar has faced various difficulties on his mission but is determined to bring changes to the national flag carrier. In an interview with Sanjeev Sharma and TP Bhusal of New Business Age, Kansakar talks about NAC’s purchase process of the new airbuses, efforts made to come out of the EU safety list, along with the initiatives made to ease the problems seen in operating the new Chinese aircraft, and future strategies. Excerpts:
What is the progress on the purchase of the two wide-body Airbus aircraft?
The process is nearing the final stage. We have already dispatched Rs 100 million in advance to the seller of the airplanes. The purchase agreement phase will happen shortly. We will have to sign is an agreement with a joint venture of three foreign companies, the AAR Corp from United States, Hi Fly from Portugal and Germany’s German Aviation Capital. The German Aviation Capital filed a tender on behalf of the three companies and a representative will come to Nepal soon. Both parties have 2-3 conditions regarding the purchase of the aircraft. The conditions will be discussed and the purchase agreement will be signed. We expect both planes to land here between January and March of 2018.
NAC is said to be buying the aircrafts at relatively cheaper prices than the market rate.
The price is not that cheap actually. We were asked the same question in a Public Accounts Committee (PAC) meeting. We found that in aviation dealings, manufacturers list the price of aircraft as catalogue prices. Meanwhile, some sellers put it as a listed price, which is about half the catalogue price.
The price of the Airbus 330 has been marked at USD 230 million on the website of Airbus SAS. But we are purchasing the plane for USD 104 million. We don’t know why there is such a difference in price. This has led to the belief that we are buying old aircrafts. But we can assure you that we are purchasing brand new planes. Airbus SAS is the only company in the world that manufactures the Airbus 330.
What are the reasons behind NAC’s decision to replace Boeings with Airbuses in its international fleet?
It is common practice in the international aviation sector for airlines to continue using the aircraft of a particular manufacturer once they buy planes from that company. This reduces operation costs and makes it easier for the airlines to operate.
We will have four Airbus planes after the addition of the two new planes in our international fleet. We now have one operational Boeing aircraft left in our fleet. We have plans to auction the Boeing jet by announcing an international tender in about a year and a half. Meanwhile, another Boeing 9N-ACA which is currently grounded will be auctioned soon. We will publish a global tender for the purpose in a few days. The plane is in operable condition and will be sold to the highest bidder.
What is the market share of NAC in international flights compared to the other airlines operating in Nepal?
Tribhuvan International Airport (TIA) has sustained our international market so far. NAC only has 10 percent of the international air passenger market share. The foreign airlines operating here hold the remaining 90.
It’s not that NAC cannot expand its market. We need more aircraft first to increase our share of the market. Currently, we have only two operational aircraft that fly for 24 hours a day.
How will the addition of the new aircraft increase the market share of your company?
The new Airbus planes can fly for 10-11 hours straight. It means that passengers can reach London without any transit. Our target is to increase our international market share to 15-17 percent.
How is the national flag carrier performing in terms of international flights?
The occupancy rates are good for our eight international destinations except for Mumbai. Recent statistics showed that private airlines have a 70 percent occupancy rate for these destinations, whereas it’s 70.5 percent for NAC. Therefore, our performance is better compared to private airlines. There are some people who question our ability to operate wide-body aircrafts. I would like to ask them why we can’t operate two planes when some two hundred countries operate thousands of airlines. We need to ditch this mentality. Ethiopian Airlines, for instance, which now owns 74 aircraft has shown that a flag carrier can perform very well without taking any consultancy services.
NAC has long stopped flying to many lucrative destinations across Asia and Europe due to the lack of planes. What plans are on the shelves to restart the flights and expand its wings to new destinations?
We have plans to restart the flights to the European airports and reach out to new destinations once the new aircraft arrive. We are also looking to restart our flights to Japan. Osaka was among our major destinations until a couple of years ago. Besides that, we have plans to start flights to large Tokyo airports such as Haneda and Narita. Perhaps we could go to any two of the three destinations.
It is important for us to resume the flights to Europe as the destinations there are beneficial from a commercial point of view. Restarting the flights to the continent can also act as leverage for us as there are no direct flights to Nepal from EU countries. Meanwhile, Saudi Arabia can also be our next potential market where approximately 500,000 Nepalis live at present. The Middle East country can be a good market for us as there are also no direct flights from there to Nepal. Similarly, we are also thinking of adding flights to the places where our two Boeings have been flying.
NAC has already received a slot at Incheon International Airport, the largest airport in South Korea. We are in a position to launch flights immediately after the arrival of the aircraft. We have already started commercial preparations for South Korea.
We are also targeting Australia and New Zealand. The number of tourists from the two countries visiting Nepal has been significantly increasing in recent years. We could attract more tourists from these nations that have a high level of per capita disposable income. In the meantime, the presence of the Nepali diaspora across Australia too is strong. There have been complaints about the expensive airfare rates on Australia bound flights from Kathmandu. It is considered cheaper to fly from the Indian cities of New Delhi and Jaipur to Australia compared to Kathmandu. We first need to sign the Air Service Agreement (ASA) with Australia to launch the flights. The Ministry of Culture, Tourism and Civil Aviation has been working on this.
Nepal's efforts for the last three years to remove itself from the list of carriers banned by the European Union (EU) have not met with any success. How can NAC restart flights to Europe in such a situation?
It won’t be possible for us to operate flights to European destinations unless we come out of the EU air safety list. Nonetheless, we hope that the EU will lift the air ban by the time the new aircraft arrive. Foreign minister Prakash Sharan Mahat has already talked to a high level EU team when he was in Brussels a few weeks ago. Likewise, I and erstwhile tourism, culture and civil aviation minister Jiwan Bahadur Shahi also raised this issue during the 39th general assembly of the International Civil Aviation Organisation (ICAO) council in October, 2016. We have asked them to lift the air ban as it has treated us harshly. We have been continuously lobbying for the ban to be lifted and remain confident that the EU will change its decision.
NAC has a history of nearly six decades of international flights with good track records and world class safety arrangements. There are no reasons why we should not be able to maintain the proper safety systems on flights.
What has NAC been doing to improve to meet the EU demands?
The EU has asked us to meet European standards on the operational side. It won’t be possible for a government-owned company in a country like Nepal to fully comply with EU standards in a short period. Regardless of the hard work and expenses it may take, we are committed to meet the standards. Complying with the EU safety regulations are also important to ensure higher levels of safety in air travel.
Our improvement drive led Airbus SAS to send four experts contributing USD one million at our request. They prepared a report regarding the possible areas for improvement in NAC. An expert was appointed in the operations department three weeks ago as per the report’s recommendation. Similarly, NAC will have a similar arrangement in the engineering department too. We expect to soon come out of the EU safety list.
Domestically, NAC has been facing various problems operating the recently acquired Chinese aircraft which it received as grants. In the meantime, two new aircraft from China have arrived and two more will be added to the airline’s domestic air fleet. How is NAC managing the problems?
The problems that have come about in operating the Chinese aircrafts are due to weaknesses on both sides. We have not been able to prepare the pilots to fly the planes in time. We have worked by making half a schedule instead of a full schedule as we have less spare parts and technical support for the aircraft.
Meanwhile, it is also due to the lack of logistic support from the Chinese side. Both parties have been facing problems in communication due to the language barrier. The Chinese engineers who are here for the aircraft and our personnel have been facing difficulties communicating with each other. Nonetheless, the Chinese have said that they will be providing the required technical support for the aircraft. This problem will be gradually solved.
We have decided not to bring new planes from China unless pilots are arranged. NAC has already advertised for new pilots for the purpose. The aircraft will come in the near future as per the agreement between the governments of Nepal and China. Earlier, there was confusion whether or not to bring the additional aircraft from China for two years. We brought the two new aircraft after the government decided to give it a go-ahead when Jiwan Bahadur Shahi became the tourism minister.
How has the domestic market been like for NAC?
We have been flying to some 26 domestic destinations which is the largest for any airlines that operates domestic flights within Nepal. Even the private company with the largest number of planes in the country has been operating in only 11 destinations so far. The public expects us to start flights to places where the private airlines are reluctant to go. I think such expectations are reasonable. Profit is not everything. We still have many villages across the country from where it takes five to six days to arrive to the capital. The flights to such places will aid in the socio-economic development of the areas. The profit we earn from international flights can support our domestic services.
PAC recently directed the civil aviation, culture and tourism ministry and NAC to appoint a strategic partner within three months. How is NAC planning to move ahead with the appointment of the strategic partner?
Appointing a strategic partner is a bit of a complex process. The NAC management has already presented its opinion in front of the board. The proposal has reached the ministry for the final decision. A committee including two members from NAC has been formed under the leadership of the Joint Secretary to decide on the appointment of the strategic partner. If this approach ‘clicks’ and proves to be good, it will be an example.
However, we are prepared to move ahead in case the strategic partner is not appointed. Getting a good partner will be beneficial for us. But it won’t be an easy matter. If the prospective partner says it needs shares in income rather than from the profit, it will not benefit us. Another thing is that as the decision making process is quite slow in Nepal, we can't say for sure what will happen in this regard.
How will the strategic partner strengthen the NAC management?
We are looking for a prospective strategic partner who is willing to work with us on the basis of sharing a certain percent of the profit NAC earns rather than hiring on the basis of a certain income. We are searching for a partner who can not only take care of the management side of things but also bring new business ideas and aircrafts to strengthen our market position.
NAC has been successful in earning profit in the first six months of the current fiscal year after a long time. What’s behind this achievement?
The addition of new wide-body aircraft, increasing morale, confidence and efficiency among the employees, support from the government and increment of savings in air fuel expenses have contributed to the corporation’s profit. As part of our institutional improvement, we will be starting the online process of our international ticketing within the next three months. Likewise, we are also working towards digitalising the paperwork and archives. All these initiatives will further strengthen the NAC in the coming days.