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Kathmandu Tuesday January 29, 2002 Magh 16, 2058.
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On the brink of collapse
By PRAVAKAR ADHIKARI
It is good to know that His Majesty’s
Government has constituted a high level committee to study and analyse various aspects of
the functioning of Royal Nepal Airlines Corporation (RNAC) and submit a report with
suggestions to develop and expand the national flag carrier as an effective airline. It is
saddening to note that at present RNAC has more than Rs 2.5 billion in debt, and is
virtually on the brink of collapse. If a serious political will has motivated the
formation of the committee, then it is still not too late to bail out the national flag
carrier from the present crisis.
First of all, it may be pertinent to mention
here that RNAC came into being on July 1, 1958 through an Act of Parliament and started
its operations with one Dakota (DC-3). Since then, it started to grow and attained its
peak after HMG introduced a liberalisation policy in the aviation sector in 1992. Through
promulgation of this policy, the "lone bird" days for RNAC in Nepalese skies
were over. Furthermore, HMG introduced the National Civil Aviation Policy on August 31,
1993, within less than one and half years of providing the first Provisional Air Operators
Certificate (PAOC) to the private sector. This policy was prepared after reviewing the
prevailing domestic and international air transport services and duly considering the
privatisation policy pursued by HMG. The policy has a clear provision on RNAC. In order to
make RNAC move ahead with the times in the national and international arenas, bifurcation
of the national flag carriers into the international and domestic services has been
envisioned.
The idea behind such a provision is to develop
RNAC (international) by looking for a foreign airline as a joint venture partner.
Regarding the domestic front, it is mentioned that "the government shall keep 51
percent of shares and later gradually reduce the portion of its shares." It is also
clearly mentioned in the policy that the rest of the shares should be floated to private
shareholders who will eventually take over RNAC. Eight years have elapsed since
promulgation of the policy but there is no sign of bifurcation. In the absence of such
privatisation policy, RNAC (domestic) will collapse, as it cannot compete with private
airlines. The main reasons for this are political interference, huge and unnecessary
administrative expenses, subsidy, corruption, a traditional and outdated approach,
inability to keep up with the present pace, etc. Since liberalisation of the aviation
policy, RNAC’s domestic market share has shrunk to less than one-fifth of the total
market, and is declining further day by day. For this very reason HMG had introduced a
bifurcation policy, but it failed to implement the same. And rather resorted to excessive
control and political interference. As a result, 13 Chief Executives were changed since
promulgation of the National Civil Aviation Policy. Some of their terms expired in less
than three months. Leasing of aircraft has always brought political turmoil and financial
burden to RNAC. It is an open secret that politicians have virtually taken RNAC as a
source of personal gain without bothering about its welfare. It is still not too late if
HMG implements its policy on bifurcation keeping in mind the current trend in the
international airline industry. I do not think any joint venture partner is ready to
invest in RNAC without bifurcation. Past experience with operation of domestic airlines in
Nepal shows that as of today none of the domestic airliners has proved to be financially
credible and professionally capable of taking over RNAC as it is today. Even in the
domestic sector, without a market alliance and without the forwarding hands of partnership
with other domestic airliners, it will be very difficult for airlines to survive in Nepal
as there is cut-throat competition.
Furthermore, due to the present global scenario,
it may also not be in the interest of a joint venture partner to join hands with RNAC
without bifurcation. This has become more evident especially in the aftermath of the
September 11 terrorist attacks in the US. The airline industry and tourism worldwide have
suffered heavily and incurred heavy losses after the attack. Even the biggest airlines in
the US, Europe and Asia had to take drastic steps like laying off thousands of employees,
reducing or discontinuing non-profitable destinations and adopting cost cutting economy
measures to sustain and survive. Some airlines were saved from collapse by local
governments, bailed out with liberal grants/loans, while some of the famous airlines have
collapsed and become history.
It is tragic that RNAC suffered a double blow in
the aftermath of the terrorist attacks in the US. It was already suffering from a global
economic slowdown, mismanagement and low staff morale, heavy losses on most of the routes,
the hijack of IC 814, the Hrithik Roshan episode, Maoist violence and so on. By now we all
have realised that the reasons for not bifurcating RNAC are, one, it was treated as plague
and two, it is still treated as a milching cow by politicians in power to appoint cronies
to top management posts and manipulate transfers and postings abroad for chosen and
favourite staff, apart from encouraging corruption in aircraft lease deals and procurement
in the form of commissions. Due to mismanagement all international routes, with minor
exceptions, were incurring losses, and domestic losses made the situation even worse. Had
it bifurcated, a foreign partner for RNAC on the international side and the private sector
on the domestic side would have run it as a commercial organisation, and thereby made
handsome profits.
It may be noted that all over the world a
national flag carrier is considered to be a window on the destination. An airline may not
be able to operate worldwide due to capacity and aircraft constraints. That is not
necessary. What is important is to have efficient and wise management and airline partners
to maintain a presence as well as earn substantial profits besides promoting tourism for
the country, which in turn generates employment and income in related areas of the economy
like the hotel industry, foreign exchange earnings, government revenues from
visa/departure taxes etc. It is ironic that many airlines, established around the same
time as RNAC, have become leading airlines and part of the global airlines alliance
network in the world, while RNAC has shrunk after losing its monopoly through the
liberalised aviation policy. It could not compete with the private sector on the domestic
front, and it could not join hands with successful carriers on the international front.
In the last 4-5 years, the airline industry has
all over the world gone through very rapid developments. Those which were unable to
compete with bigger airlines joined hands with the established ones, including through
equity participation and management. One such example is the Sri Lankan airline and
Emirates where Emirates invested 40 percent in equity and in lieu has taken full
management control of the Sri Lankan Airline.
Likewise, marketing alliances exist among major
world airlines, viz Star Alliance which consists of United Airlines, Lufthansa,
Scandinavian Airlines System, Thai Airways, Singapore Airlines etc. One world membership
consists of American Airlines, British Airways, Qantas, Cathay Pacific Airways etc, Wing
Alliance membership consists of North-West, KLM and Continental, Own Alliance membership
consists of Delta, Air France etc. By joining hands, these airlines have pulled their
resources together as well as avoided competition on parallel routes. But by not
implementing a good aviation policy at RNAC, HMG has failed to catch up with the global
trend. Furthermore RNAC has also not followed the prevailing international commercial
policy. As a result, RNAC is now on its deathbed.
On a world map, Nepal is an attractive adventure
destination with satisfactory tourists related infrastructure, but when it comes to
aviation, it has missed the opportunity through total mismanagement, political
interference and failure to follow the aviation policy as well as the prevailing
international commercial policy which might have taken it to new heights. The recent
formation of a committee to make RNAC efficient has no meaning unless the government has
an open mind on freeing its management from the clutches of politicians and letting it run
as a commercial organisation under professional foreign management. Needless to say Air
France Management, introduced in the early 70s, lifted the image of RNAC and also changed
the working pattern of officials. This arrangement should be continued until bifurcation
takes place.
In the mean time, in order to satisfy the needs
of ailing tourism related industries and also to uplift the economy, HMG should allow
other international airlines to operate flights in the "Open sky" so that more
tourists could be brought to Nepal. The alternative way of survival for RNAC till
bifurcation takes place could be to join hands with some willing airline in the domestic
sector and operate flights jointly under commercial arrangements. In the international
market, RNAC could reach similar agreements and generate additional revenue by utilising
available traffic rights and without having to utilise its own aircraft. Last but not the
least, if the government still does not realise the gravity of the situation at RNAC and
come forward with schemes to save it from disaster, the national carrier will collapse in
no time and will soon be consigned to history.
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