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October, 2002 |
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CORPORATE FOCUS |
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Air
Dynasty Struggle with the Dynasty
A
story of a foreign investor’s Patience
Generally
speaking, the foreign investors are depicted as a very fidgety specie,
in the style of Hindu goddess of wealth Laxmi who leaves a person’s
home for the slightest reason that displeases her. Similar nature of the
foreign capital is blamed for the financial crisis that plagued the
south East Asia in mid-90s. Then one may ask, how long can a
foreign investor wait for his effort to start bearing fruit? While one may go on
fumbling for the answer, one example from Nepal shows that a foreign
investor may really wait for quite long. They waited a whole decade
after putting in the first million dollars of the investment and prayed
that the formal document will be received from the authorities
recognising the investment. Such has been the case of
what is now known as the Air Dynasty Heli Services (P) Ltd., formally
registered in June 2000, which started its operation since August 2001
with two French made Ecureuil helicopters. The company also wants to
operate heavy-lift MI-17 helicopters and a couple of fixed-wing aircraft
provided the tourism industry here starts showing some positive trend. Though it is a helicopter
company now, the beginning of the venture was made not for an airline
but for coffee industry. The Australian investors had come here for the
first time in 1993, soon after the new Industrial Policy and Laws were
introduced in 1992 making some very liberal provisions for foreign
investment, says Navin Pokharel, Executive Director of Air Dynasty Heli
Services (P) Ltd. But after coming here they found that the
opportunities were more real in aviation than in coffee and the
Australians already had a long experience in this sector in Papua New
Guinea. But the initiation in
Nepal was perhaps made not at an auspicious moment, as it seems. The
project went into trouble from the very beginning. First there were
landslides in Nepal while the Australians were here. Because of the
disturbances that the natural calamities caused in the Nepali
administration, the legal aspects of the project could not be completed
while the foreign investors were here. They went back and sent two
helicopters to Nepal even without any legal documentation, but the local
investors who were supposed to invest 32% of the project cost refused to
invest. The result was that the business suffered from the lack of
investment, the marketing was severely affected and the business entered
the stage of litigation between the foreign and Nepali investors.
According to Pokharel, the case is still pending with the Appeal Court. Now Air Dynasty is
operating as a continuation of Dynasty Aviation and it has about a dozen
of people from trekking companies as local investors but minus those
original local partners who are in litigation with the company now.
Among the local partners now include Tashi Ghale (of Royal Singi Hotel
fame who is also the managing Director of Air Dynasty), Ang Tendi Sherpa
and Capt. Dawa Jangbu Sherpa. The shareholding pattern now is 50:50
between the local and foreign investors. At present the company
holds about 40% market share in the heli service business of the country
and though the company is now at break-even, as Pokharel claims, the
loss of business due to the protracted legal wrangle was immense, he
notes. Dynasty was one of the first two private sector operators in this
field (there was only Himalyan Helicopters as the other competitor from
the private sector then), because of the 18-20 months delay in the
beginning in the operation of Dynasty some other operators entered in
the field. So a lot of business that Dynasty could have received went to
the other operators. “Though it is technically among the oldest
aviation companies in Nepal, it could not benefit from this fact”,
laments Pokharel. Another loss that the
company had to suffer is the loss of the five-year tax holiday that the
Industrial Policy had provided in the past. The period of the holiday
was used up in the protracted legal wrangling. Now that the tourist of
the segment that helicopter companies serve are not coming to Nepal due
to the security concerns, Air Dynasty has started changing the focus of
its business slightly. “Our business is light helicopter services
targeted to serving the tourists, but due to the situation after
September 11, 2001 and the state of emergency in Nepal, we had to change
the focus and now we are serving also the central bank for example.
Though this business is not profitable it has helped somewhat for the
survival”, says Pokharel.
Despite these problems Air
Dynasty is continuing because the foreign investors are serious and
committed to Nepal and they have full confidence on the Nepali
investors, says Pokharel and cites as proof for his claim the fact that
the foreign investors were here in September 2000 and thenafter they
have fully relied on the local investors who are managing the business
of the company. Describing the other
problems of the business, Pokharel says that it is not possible for the
helicopter company to try and win the customers from the fixed wing
operators (meaning those aviation companies that do not operate
helicopters), because the customers belong to two different segments.
Only those people will hire helicopter services who know the value of
the sightseeing by a helicopter. There can be no comparison of the cost.
For the same sightseeing on fixed wing aircraft it costs only $100 (the
mountain flight cost) whereas for the helicopter it comes out to be $200
per hour which goes up to even $500 when all the other associated costs
are also considered. However,
the more serious problems are associated with the government’s greed,
says Pokharel. The example is the hefty hike in various fees and charges
levied on the aviation companies. For example, the renewal fee for Air
Operating Certificate was Rs. 20,000 only, this has now been changed to
$2,500. Similarly, aircraft registration fee has been hiked from Rs.
12,000 to $300. Previously, the licence once issued would be
valid for full twelve months, now it is valid for only one fiscal year,
thus necessitating the payment of the fee twice within the same fiscal
year. Rs. In thousand 
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