After Two Years Of Grounding Nepal Airlines Seeks To Lease Its Fleet

Contrary to its international aviation sector, Nepal’s domestic aviation sector has seen a positive rebound in the past year despite the after-effects of the pandemic and an economic crisis. While international flights struggle to reach pre-pandemic levels, Nepal’s domestic traffic saw a 15% growth. However, state-owned Nepal Airlines had not been able to enjoy the rebound as it withdrew most of its domestic operations due to mismanagement.

The gap has since been filled by private domestic airlines, as Nepal Airlines’ five Chinese-made Y-12s and MA60s remained grounded for the last two years, leaving the airline with two airworthy Twin Otters over 30 years old, two Airbus A320-200s, and two Airbus A330-200s. And now, two years after the initial grounding, the Nepalese flag carrier is issuing a Request for Proposals to lease out the five grounded aircraft.

A recap of the grounding…

Once the country’s largest employer and earner of foreign currency, Nepal Airlines eventually fell short due to corruption and mismanagement. As a result, the airline had difficulty balancing its books even in the best of times before the pandemic. Over the decades, the airline also gradually lost the public’s trust with its consistent inefficiency., subsequently ruining its plans to expand its international long-haul network.

While the airline’s management made several bad decisions, the worst was most likely when it decided to order and bring in six Chinese aircraft, two MA60s, and four Y-12s between 2014 and 2018. The idea was that these six aircraft would fly on underserved mountain routes and attract more passengers. Though the idea of a fleet expansion wouldn’t have been wrong in general, Nepal Airlines was bleeding money, and the Chinese aircraft cost more money to operate than the cost to bring them in.

Given that the Chinese aircraft became unaffordable to fly, and when paired with the airline’s lack of efficient operations, the remaining five condemned turboprops were grounded to stop further losses for Nepal Airlines. Even as the aircraft were grounded, the flag carrier’s operating costs dropped, but it still had to pay insurance premiums for the fleet and spare parts.

Revisiting an idea from two years ago…

However, Nepal Airlines is still neck-deep in other forms of debt and serious financial trouble. Without much cash, the airline has been defaulting on other loans it had previously taken to buy Airbus aircraft for years, and it still has to repay the interest for the condemned aircraft. A spokesperson for the flag carrier, Archana Khadka, said:

“We haven’t paid the installments nor the interest to the government as we have grounded the Chinese planes. The Finance Ministry has directed us to manage the planes, so we have decided to lease them all.”

Although it might seem shocking for Nepal Airlines only to lease the grounded aircraft after two years, the idea already came into mind in December 2020, five months after the grounding. The airline’s head, Dim Prasad Poudel, had submitted four options to the Civil Aviation Ministry to eliminate the Chinese aircraft in its fleet.

• The first option was to ask the Chinese aircraft manufacturers to buy back the planes after evaluating their current worthiness.
• The second option was to lease out the planes to interested Nepali operators on a long- or short-term basis.
• The third suggestion was auctioning off the planes through competitive bidding worldwide.
• Finally, the fourth initiative was to look for Chinese or international companies or banks interested in buying or leasing them.

It was eventually decided back then that Nepal Airlines would lease the grounded aircraft and had allegedly completed the preparations. Unfortunately, airline head Poudel subsequently landed in trouble for intending to privatize Nepal Airlines, and through the politics and constant changing of leadership within that year till this year, the decision to lease was overturned and never revisited until this month.

Trying to expedite the process…

In its Request for Proposals, the Nepalese flag carrier is now seeking dry-lease placements for its five grounded aircraft. Under the dry lease, the airline will only provide the aircraft without crew or ground staff.

The lease tenure is determined by the submitted bids, consisting of airlines with a valid Air Operator’s Certificate (AOC) and at least one aircraft in their fleet, which are due by the end of October this year. It is said that Nepal Airlines will also be providing a wide range of spare parts and tools together with the aircraft, which are all currently grounded at Kathmandu Airport, and will be available for inspection on an ‘as-is, where-is’ basis.

Bottom line

The acquisition of the six Chinese aircraft then was supposed to mark the dawn of a new era for Nepal Airlines, significantly since the flag carrier had even changed its class red and blue stripes livery for a more modern look. Unfortunately, they became a financial disaster right from the beginning. And though the motions are set to dry-lease the aircraft, they could be relatively rusty due to corrosion on the metal surfaces and aircraft components.

Considering the airline has been cash-strapped, it’s become questionable if and how the spare parts said to be provided got into its possession, especially since the five aircraft were grounded and considerably untouched for two years. While the hope for potential leasees may seem extremely bleak, Nepal Airlines remains hopeful that it can finally rid its fleet of the five condemned aircraft.