Nepal Airlines and its core details to transfer in company model

It was announced to bring in strategic partners in the Nepal Airlines Corporation through the current fiscal year’s budget and transform it into a company model for that. Preparations have been started accordingly.

The government had asked for the necessary management letter and rules for regulating the Corporation’s leadership in the company model. The management of the Corporation has provided the structure to the ministry accordingly.

However, the employees of the Corporation have started agitation after submitting the structure. Thursday, the employees of the Corporation have maintained a sit-in in the office premises. On Wednesday, the management of the Corporation has formed a committee to hold talks with them. Still, the agitating employees take a stand that they should not even sit in the negotiations with the committee and return the management letter unconditionally.

On the other hand, the management has said that the Corporation cannot repay the loan in the current model except by asking for money from the government and receiving the salary. Employees are saying that the existence of the Corporation should not be measured. The management is arguing that the organization cannot be run traditionally.

What is a government scheme?

In the budget of the Fiscal Year 2078/79 (21/22), it is mentioned that the Nepal Airlines Corporation will be restructured and made commercial and competitive. For that, the process of recruiting strategic partners through open competition will be started.

The budget also mentions the objective of increasing the share capital structure of the Corporation by changing it. The Ministry of Finance, Financial Sector Management, and Institutional Coordination Division sent a three-point decision to the Airlines on June 11, 2021, as per the process to start implementing the programs mentioned in the budget.

It is said in three points.

  1. According to The budget of 2078/79 point no.427, the organization of the Nepal Airlines Corporation will be restructured and made professional and competitive, the process of recruiting strategic partners through open competition will be started, and the share capital structure of the Corporation will be changed and increased. To submit DDA within June 29 and to transform the Corporation into a company model as soon as possible.
  1. To restructure the Nepal Airlines Corporation, the Corporation will prepare a draft of management letter and rules and submit it to the Ministry of Finance through the Ministry of Culture, Tourism and Civil Aviation by June 29.

  1. To reconsider the interest rate and penalty currently being levied on the loan investment made by the Employees ‘Provident Fund and the Citizens Investment Fund’ to the Nepal Airlines Corporation, the Nepal Airlines Corporation will coordinate with both to ensure the current year’s interest liability.

The government has thus started preparations to transform the Corporation into a company model and find strategic partners based on it. According to the general manager of the Corporation, Dim Prasad Poudel, the stakeholders conclude that the Corporation cannot progress from the traditional structure of the public Corporation.

Even if there is a loss now, the aircraft should fly. The Corporation is in a position to face the government. The decision-making process has been slow, but the company model is believed to reduce procedural hassles and help companies achieve faster returns as they will not operate at a loss.

What will change when the company transforms?

Nepal Airlines Corporation is operating following the provisions of the Act created in 2019 BS. According to this Act, the Corporation’s paid-up capital is only Rs. 370 million. The government has repeatedly invested Rs 31.04 billion in the company, which has debt liabilities of over Rs 47 billion and assets of over Rs 50 billion, but it has not turned into shares.

Indigenous or foreign investors see more risk in an institution with low paid-up capital. On the other hand, when it is run as a corporation, the government interferes too. That is why it is prepared to operate in the company model. According to General Manager Poudel, the company has specific provisions. The goal is set. Employees are assigned responsibilities to accomplish that goal. Those who do good work are rewarded, and those who do wrong are punished. This will enable the employees, and the company will be strong, says General Manager Poudel.

Nepal Airlines Y12E-Aviation Nepal
Nepal Airlines Y12E-Aviation Nepal

As per the present proposal, the name of Nepal Airlines Corporation will be Nepal Airlines Company Limited. It has been proposed that the majority share of the government in the company will be the share of reputed foreign airlines, Nepali Airlines, tourism stakeholders, and the general public, as well as the shareholders and former employees of the company.

It is also mentioned in the proposed management letter that if the government of Nepal puts 100 percent shares of such a company, then the company can be operated accordingly. As the investor is constantly monitored, the company will have a sense of responsibility to continue to meet the target.

After going to the company model, the exact number of employees required by the organization will be decided. Insufficient staff will be recruited, and disproportionate numbers may be reduced. However, the management claims that the decision will be made without affecting the future of the existing employees.

Can’t a public corporation turn into a company?

According to the management, the conversion of Nepal Airlines into a company does not mean selling it to another private company. There are currently a total of 44 public institutions in Nepal. Of these, only 23 are wholly owned by the government. There are 21 companies owned by the Government of Nepal with more than 50 percent shares. Even in Nepal Airlines Corporation, it has been proposed to convert 100% or a majority of the shares to the government. Thirty corporations have been privatized in Nepal. After privatization, 12 companies have been scrapped. Eighteen companies still exist.

Photo: Nepal Airlines Modern Ark (MA60) ‘9N-AKR’ at NAC Hangar

Among the companies running profit after privatization are Nepal Telecom Company Limited, Nepal Bank Limited, Nepal Tea Development Corporation, and Shree Raghupati Jute Mills.

Nepal Oil Corporation Limited, Nepal Stock Exchange Limited, Power Generation Company Limited, Herbal Production, and Processing Company Limited, Nepal Forest Corporation Limited, Rashtriya Bima Company Limited, Rashtriya Banijya Bank Limited, Janak Shiksha Samagri Kendra Limited, Nepal Railway Company Limited, Vishal Bazar have been transformed into a company model.

What is the first plan to take the Corporation to the company?

Experts say that if the government does not support the Nepal Airlines Corporation, it will soon collapse because the government has been supporting Nepal Airlines. Therefore, the efforts for the reform of the Corporation seem to have started after 2058 BS. Seven working groups have been formed for two decades to reform the Corporation. The common suggestions of all the reports are institutional and managerial reform of the Corporation, transforming it into a company, attracting foreign investment, including investment of domestic entrepreneurs and financial institutions, adding fleets, increasing business capacity. The government has not shown any readiness to implement these suggestions.

Photo: Nepal Airlines Hangar Facility at TIA, Nepal

The government had announced in its budget statement for the fiscal year 2073/74 that it would bring in strategic partners in Nepal Airlines. In that year, the Corporation had written a letter to the ministry to take the initiative for this purpose. Accordingly, through the embassies of the United Kingdom, France, Germany, the United States, and Australia, the government had invited interested airlines from the three countries to become strategic partners. After the proposal, Germany’s Lufthansa seemed interested. However, the proposal did not go ahead as the government did not show further interest.

In February 2020, the Board of Directors decided to privatize Nepal Airlines. The board of directors had agreed to sell 25 percent shares of the Corporation. As per the proposal, it was proposed to give 22 percent to the employees of private companies and 3 percent to the employees of the Corporation.

This proposal was passed by the Board of Directors and passed through the departmental ministry. However, since Finance Ministery did not make any decision, the decision could not be materialized. Since then, the government has started the process of transforming it into a company model.

Why are employees protesting?

Employees of the Corporation fear that the company model will trap the existence of the national flag bearer of the Corporation. Stating that the far-reaching decision to take the company was not made in consultation and coordination with the employees, they have doubted the intention of the Government of Nepal, the Board of Directors, and the General Manager.

What will be the organization’s future if the foreign and domestic investors who are supposed to come for the shares will not come after the decision? Hem Lamsal, general secretary of the office employees’ union of the Nepal Airlines Corporation, says that the employees favor returning the unconditional management letter. He said that 100 percent of employees up to the 11th level are against this decision.

He said that the structure of the shares proposed in the management letter is called the company model. Still, the game of transforming the Corporation into a private company will start in the future, and it has raised fears that the Corporation may fall into the hands of a private company. ‘Who are the shareholders who buy the shares, and who are the owner? There is no clear explanation for this, ‘he says. Employees say the attempt to resolve long-term issues of NAC in a hurry has raised questions about the leadership’s intentions.

Is it a bad intentions in a hurry?

The corporation leadership is not ready to accept this. General Manager Poudel admits that the Corporation cannot be run in the status quo. “Nothing has been done to go against the interest of the corporation,” he says.

He says that even if the operational modality is changed by converting to the company model, it will not impact the employees’ future. He also said that the agreement would not be compromised in such a way as to disrupt the existence of the national flag bearer of the Corporation.

He considers the ultimatum given by the government as a factor in hastily drafting the regulations and management letter. Stating that the draft has been submitted to the ministry as the finance ministry has handed over the responsibility within 15 days, he said that the process would move forward only after the opinion of the stakeholders on the draft.

Does moving to a company model change NAC overnight?

“In the past, the corporation has been used extensively by ministers, secretaries, and governors as a recruiting center for its people,” said a former employee who has spent three decades in the Corporation. “The way we dream of change as a company model is no less challenging.”

Institutions investing in the government’s shares should follow the government’s policy in all processes from purchase. Due to this, he claims that even going to the company for a model cannot solve the procedural hassle.

Nepal Airlines Corporation A330 - Aviation Nepal
Nepal Airlines Corporation A330 – Aviation Nepal

On the other hand, he said that there is no guarantee of investors coming to the institution with a debt of Rs 47 billion and suggested that the institution should be strengthened by increasing its capital. He said that any treatment could not cure the Corporation if it did not follow the literal business plan.

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