Nepal Airlines selling off planes at ‘junkyard price’

Nepal: Nepal Airlines is planning to sell off its Chinese planes that have been like an albatross around its neck for what an insider said is junkyard price.

                                                 photo: TKP

Acquired between 2014 and 2018, the six aircraft were worth Rs6.66 billion in grants and loans. One of the planes has since crashed. The national flag carrier is asking Rs220 million for the remaining five aircraft in an apparent effort to get rid of them as fast as possible.

Nepal Airlines officials say the grounded planes—two 56-seater MA60 and three 17-seater Y12e—have been more trouble than they are worth.

Plagued by breakdowns and lack of pilots, operating the aircraft was a massive financial strain, pushing the debt-ridden company into greater distress. In July 2020, the state-owned carrier felt it had had enough, and put all of them in deep storage.

The current asking price of Rs220 million was determined by an independent international assessor, according to a highly-placed source at Nepal Airlines Corporation.

“That is scrap value,” said the official.

On January 19, Nepal Airlines issued a request for proposals (RFP) for a full appraisal of the two MA60 and three Y12e aircraft. The company had decided to sell the planes and spare parts as there were no takers for a lease offer despite a deadline extension.

Among the four short-listed assessors—Aviation Asset Management Inc, Fintech Aviation Services Sarl, IBA Group Limited and Ishka Ltd—American company Aviation Asset Management Inc was selected.

Nepal Airlines paid the company around $20,000 for the valuation report.

“Now everyone is in a dilemma, including the Nepal Airlines board, which is reluctant to consent to sell the planes at the throwaway price,” said an official at the Tourism Ministry, who wished not to be named as the appraisal report is highly confidential.

“Who will sell the Chinese planes now? No one will dare to do it,” the official said.

Ramesh Poudel, spokesperson for Nepal Airlines, confirmed to the Post without elaborating that they had submitted the appraisal report for the Chinese planes to the Tourism Ministry last month.

“We haven’t heard anything since then.”

He said that several reports have pointed out that the Chinese-made planes were not commercially and technically viable. “As per reports, it’s not feasible to fly them. The only option is to sell them.”

According to Tourism Ministry officials, they have asked Nepal Airlines to send the appraisal report after it is approved by its board of directors.

“The report sent a month ago has not been approved by the Nepal Airlines board. Without their approval, the process to sell the planes cannot move forward.”

“The value of the planes is what they would be worth after scrapping them. No one has taken ownership of the appraisal. So, there won’t be any decision to sell them now.”

After spending $20,000 on the appraisal report, there will also be little appetite for yet another appraisal.

The Chinese-made aircraft had turned into “the most expensive white elephants in the carrier's history” right after they arrived, officials said. They doubt anybody will buy them.

On September 14, 2022, the national flag carrier had put the Chinese planes up for lease. Prospective bidders were given an October 31 deadline. As there were no bids, the deadline was extended until November 16.

There were still no takers, and the management decided to sell them off.

The five condemned planes are parked at the remote parking bay on the eastern side of Tribhuvan International Airport in Kathmandu.

The MA60 is a turboprop-powered airliner produced by China’s Xi’an Aircraft Industrial Corporation. Both manufacturers are subsidiaries of the Aviation Industry Corporation of China (AVIC), a Chinese government undertaking.

The Y12e is a twin-engine turboprop utility aircraft built by Harbin Aircraft Industry Group, previously Harbin Aircraft Manufacturing Corporation.

Except for operating services to a few airports in the Tarai plains, these aircraft spent more time on the ground than in the air even in operating hours.

Before the planes were grounded, the total accumulated losses of these planes came to Rs1.9 billion, nearly half of their cost.

Nepal Airlines said that they followed the Finance Ministry’s instructions to get rid of the five Chinese planes. One Y12e crashed in Nepalgunj.

The ministry had said the airline could dry lease the planes or sell them outright. Nepal Airlines tried the first option but got nowhere, so it is going for plan B.

It was in November 2012 that Nepal Airlines had signed a commercial agreement with AVIC to procure six aircraft—two MA60s and four Y12es.

China provided grant and concessional loan assistance worth 408 million Chinese yuan (Rs6.67 billion) to purchase the six aircraft.

Of the total aid money, a grant worth 180 million yuan (Rs2.94 billion) went to pay for one MA60 and one Y12e aircraft; and a loan worth 228 million yuan (Rs3.72 billion) was used to purchase one MA60 and three Y12e aircraft.

The Nepal government has to pay 1.5 percent annual interest and a service charge and management expenses amounting to 0.4 percent of the overall loan taken by the Ministry of Finance, as per the agreement.

The ministry, in turn, would charge Nepal Airlines annual interest of 1.75 percent on the disbursed loan amount.

As per the November 2012 agreement, China had given a seven-year grace period under which Nepal Airlines would not have to pay interest and instalment payments.

The payback period of the loan is 20 years or by March 21, 2034. The planes have completed the seven-year grace period privilege.

Nepal received the first batch of planes in 2014. The delivery of the rest of the Chinese aircraft was stalled for years after there were issues with the first batch.

The second batch of MA60 and Y12e aircraft arrived in January 2017 as part of the six-aircraft deal between Nepal and China.

The corporation received the final two Y12e aircraft in February 2018. The Finance Ministry is the owner of the planes and Nepal Airlines is the operator.

The Finance Ministry gave the green signal to Nepal Airlines to lease out or sell the planes in March 2021, after the board of directors of Nepal Airlines  unanimously decided to stop flying Chinese planes in July 2020.

They have been a financial disaster for Nepal Airlines right from the beginning. One Y12e was damaged beyond repair while one of the two MA60 aircraft has been cannibalised for parts.

In 2014, marking the beginning of what was supposed to be a new era for Nepal Airlines after acquiring the planes, it had even changed its classic red and blue stripes livery, opting for a more modern design.

But these planes never brought happiness and money, said officials.

Nepal Airlines—which is known more for its poor service, planes being grounded most of the time and frequent management changes—has been eviscerated by politicking.

Every time a new management team or new tourism minister comes in, it begins the process of replacing the Chinese planes with new Western-made regional turboprops.

Last week, a committee headed by former governor of Nepal Rastra Bank Deependra Bahadur Kshetry suggested selling Nepal Airlines’ shares worth Rs4.5 billion in Soaltee Hotel to buy new planes.