Nepal Airlines Corporation (NAC) is grappling with mounting debt and capital shortages, making it difficult to secure a Rs 135 billion (USD 1.1 billion) loan despite issuing expressions of interest (EOI) four times in the past year. The proposed loan aims to fund the purchase of new aircraft, repay existing debt, and construct a hangar.
In 2015, NAC took a loan of approximately Rs 33 billion from the Employees Provident Fund (EPF) and the Citizens Investment Trust (CIT) with a government guarantee to procure two wide-body and two narrow-body aircraft. However, delays in repaying the principal and interest have increased the debt burden to around Rs 50 billion.
According to NAC Spokesperson Ramesh Poudel, the state-owned airline is seeking to swap its existing loans, as the interest rate from EPF and CIT remains high. "The annual interest installment alone amounts to Rs 3.5 billion," said Poudel. "We are looking for concessional loans to refinance this debt and reduce financial pressure."
The NAC issued its latest EOI on Wednesday, marking the fourth attempt to find lenders in 2024. Previous EOIs on January 23, March 13, and September 13 failed to attract any interest. Of the Rs 135 billion loan sought, Rs 75 billion is earmarked for purchasing new aircraft, Rs 55 billion for debt repayment, and Rs 5 billion for building a hangar.
Facing severe financial pressure, NAC has clarified that any loans taken from foreign lenders will not involve repayments in foreign currency. It has also stipulated conditions for stable and concessional interest rates, with plans to repay the loan over a 25-year term.
Government committees and task forces have consistently highlighted the airline's financial challenges. A task force led by former Secretary Sushil Ghimire in 2019 recommended reducing loan interest rates from the current 10.5% to 6-7% by exploring foreign lenders, as the base rate in Nepal's financial market remains high.
These reports stress that the current fleet size and market conditions are insufficient to clear NAC's debts. Legal provisions under Section 4(1) of the Loans and Guarantees (12th Amendment) Act, 2055 BS, allow the government to guarantee loans for NAC to acquire new aircraft.
Despite repeated efforts, NAC has yet to secure the required loan, underscoring the challenges of reviving its operations amidst growing financial strain and high-interest obligations.
