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COVER STORY |
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COVER STORY |
RNAC When Royal Nepal Airlines
Corporation (RNAC)’s two Boeing 757 aircrafts were grounded two weeks ago stalling
all international flights, the tourism industry, which is on the process of recovery,
received a major set back. The incident exposed the utter importance of third aircraft in
the fleet of the national flag carrier. Due to a decade of mismanagement, politicization
and frequent interventions from anti-corruption watchdogs and Public Accounts Committee of
the dissolved House of Representatives, the fleet expansion program of the RNAC was
completely abandoned for years. Having to face an embarrassing situation two weeks ago,
the RNAC’s management has now speeded up the plans to acquire the third aircraft. It
has already set up a committee to buy the third aircraft. But in view of past experiences
and over-suspicions, it is still too early to predict whether the airline management will
be allowed to buy it By KESHAB POUDEL Frustrated and angry, passengers at the
Tribhuwan International Airport (TIA) ransacked RNAC’s ticket counter and physically
assaulted the airlines staffs demanding immediate air service to go to their desired
destinations two weeks ago. But the irate passengers had to wait for a couple of days to
fly to their destination on RNAC because there was no plane at their disposal.
It was not a singular scenario at the
TIA. The passengers bound to Kathmandu in more than half a dozen of international airports
were similarly stranded for a couple of days thanks to the technical snags that hit both
Boeing 757 of the RNAC. The two aircraft were grounded in Kathmandu and Shanghai airports.
The sudden cancellation of flights forced many tourists to cancel the visit to Nepal
incurring heavy losses to hotel industry as well as the airlines itself. The RNAC may recover the financial losses
it had incurred due to the incident but it will be very hard, if not impossible, for it to
recover the damage on its credibility and image. Thoroughly disturbed by interventions
from politicians and other agencies of state particularly the Commission of Investigation
of Abuse of Authority (CIAA) and Public Accounts Committee (PAC) of the House of
Representatives in its day to day administration, the RNAC has been pushed to the verge of
bankruptcy. The recent incidents were a result of cumulative effect of all those past
interventions and bad management. RNAC, the national flag carrier, has
everything to boast about including experienced pool of technical, operational and
marketing staffs, credibility as safe airlines and traffic rights to take its plane to
many countries under its own code. The airlines can fly any craft to those countries where
it has received traffic rights as a country’s sole flag carrier. From marketing to engineering and operation
sides, RNAC has a very strong and efficient pool of employees. Unfortunately, the high
demands and indiscipline exhibited by its staffs, at times, are also responsible to put
the airlines in the present quandary. Along with all these assets and goodwill,
the RNAC has a half a century long experience of flying over different parts of the world.
From European cities of London, Frankfurt and Japanese city of Osaka and Hong Kong,
Bangkok and Indian cities like New Delhi, Mumbai and Bangalore, RNAC has operated in many
international sectors. In the domestic front, RNAC still flies its
twin otters in service of the population of remote parts of the country. It links the
country’s hinterlands with the capital. For a mountainous country like Nepal with
very limited road network, the significance of national flag carrier in catering to
domestic travel needs cannot be exaggerated. Despite all such advantages, the
country’s policy makers and institutions have made no sincere efforts to expand the
country’s only flag carrier in its five decade long history. Following a total
disruption of air schedule, the policy makers are forced to take some drastic and
immediate steps to rescue the country’s flag carrier. “We have already given the green
signal to the RNAC board to purchase an aircraft on long term lease,” said a senior
official at the Ministry of Culture, Tourism and Civil Aviation. “It is for the
(RNAC) board to decide how it can purchase new aircraft.” If things go smoothly, the country’s
only national flag carrier will add third Boeing 757 aircraft in its international fleet
through a long-term lease purchase agreement. The RNAC’s board has already formed a
high-level committee to recommend how to procure the aircraft. “The decision of the RNAC to purchase
third aircraft is a welcome step. Such decision should have been taken years ago. I
don’t understand why the board is not pursuing the decision quickly,” said
Rabindra Man Shrestha, a renowned tourism entrepreneur. After the recent incident that badly
damaged its reputation, the RNAC has accelerated the process of purchasing an aircraft on
long-term lease purchase basis. “It was a very rare incident where both aircrafts had
to be grounded the same time totally disrupting our flight schedules. This was
unprecedented. Despite taking all kinds of precaution, such incident can happen. Besides,
the incident proved our arguments that we cannot increase the RNAC’s reliability
without acquiring third aircraft. Third aircraft is essential for the survival of
RNAC,” said managing director Mohan Khanal. (See interview) Although the Public Accounts Committee of
the House of Representatives lies dissolved along with the House of Representatives, many
still suspect whether the Commission of Investigation of Abuse of Authority (CIAA) will
allow the board to lease purchase a new aircraft. “It is not easy to procure an aircraft
in the country. You have to receive clearance from the CIAA, press and all other political
parties,” said a former executive chairman of the RNAC on condition of anonymity.
“If you fail to address or convince even one of these agencies, they will create such
a situation that concerned officials will be left with no option other than to cancel the
deal.” Another official compares the situation in
Sri Lanka where the national flag carrier Sri Lankan airlines is adding half a dozen new
aircraft in its fleet. “When Sri Lankan Air and Indian Airlines ordered large numbers
of aircraft, no one disrupted the process till the dealing was fair,” he said,
adding, “But here you never know who is going to come with what kind of reports to
sabotage the deal.” In the past, all these institutions had
done most of the damage to the airlines than political interventions. They triggered panic
among the airlines management. The management lost confidence and had to suspect that even
if the deal is transparent and fair, they would be made, somehow, to appear before the
anti-graft agencies. Six senior executive officers out of 12 general managers and
executive officers appointed in the RNAC in the last 12 years are currently battling in
the court to defend their decisions. “If the RNAC will not buy third
aircraft at this juncture, it will never buy any aircraft in the future,” said an
analyst. Since the situation is still in preliminary stage, no one can predict how will
anti-graft commission respond to the present situation. Cause of Crisis The recent crises faced by the RNAC were
expected as the airline was operating in 10 international destinations by two of its
ageing B757 aircrafts. Although the airline had proposed to buy third aircraft for a long
time, no one took the initiatives. Since there is a huge cost involved and
possibilities of irregularities in the deals, the airlines often went for short-term
lease. Interestingly, almost all such lease deals landed at the CIAA and Public Accounts
Committee. Although the RNAC cut down some of its
international destinations in the last few years, it also added few more destinations like
Singapore, Malaysia and Dubai. The current international schedule is based on two B757s.
The schedule is very tight and occasionally reliability and punctuality suffers whenever
there is unscheduled grounding of aircraft. “Building corporate image takes a long
time of quality service but one flight delay, or one flight cancellation may ruin
it,” said an aviation expert. Owing to the lack of third jet aircraft on
the fleet either on ownership or on long-term lease, majority of management time had been
expended on ad hoc lease arrangement for short periods in the past. Absence of a corporate
fleet policy and long term planning ever since RA disposed off two Boeing 727 aircraft in
1993 has pushed the airline to the brink. Some Efforts to Lease Aircraft In 1998 when Chakra Prasad Bastola was
Minister of Tourism and Civil Aviation, the RNAC had got a good proposal to lease purchase
two Airbuses. But the proposal was dropped after the finance ministry declined to give
guarantee. Bharat Bahadur Karki, former managing
director, had made a decision for lease purchase of one B767-300 ER aircraft as
replacement for the wet leased B-757 in 2000, but he was removed during the initial phase
of the process. Had he brought the aircraft, he would have landed in the
controversy. After Karki, Hari Bhakta Shrestha signed a
long-term lease agreement with the Lauda Air and brought a B767 aircraft. Thanks to the
leasing out of this aircraft, the parliament was stalled for 64 days with opposition
clamoring for the resignation of then prime minister Girija Prasad Koirala. Finally, the team which brought the
aircraft landed to prison and they are still facing the charges at the special courts. The
dealing may have had certain disadvantages or irregularities involved but the process of
bringing new aircraft was totally put out of question by the subsequent RNAC management
for fear of actions and controversies. One can hardly find anybody making sincere
efforts to promote the Royal Nepal Airlines as the country’s reliable and efficient
airlines. At a time when the airline is in its most difficult phase, the former minister
Kuber Sharma had also backed the efforts to revive the RNAC. RNAC’s History Till 1970s, the RNAC just flew as a
regional airline through it turboprop aircrafts. Thanks to the management control by Air
France in 1970s, the country’s oldest flag carrier RNAC procured Boeing 727 and
extended its service to Bangkok and Singapore. It took another half decade to add another
Boeing 727 aircraft in its fleet. In 1980s RNAC operated its two Boeing 727 aircraft from
Colombo to Bangkok, Hong Kong and Singapore. Then the RNAC ordered Boeing 757 aircraft -
the bigger in capacity than B727. In 1992, the RNAC had four aircrafts in its pool two
B727 were owned by it and two Boeing 757 were under a long run lease purchase agreement.
In the domestic front it had two Averos and 10 fleet of twin otters. At that time RNAC
even extended its service up to European destinations. Then the bad days came following the
selling off of two Boeing 727 aircrafts. Although it had the technical capability to
overhaul the aircraft on its own, the sudden decision of the management to sell two
aircrafts, some said in a throwaway prices, pushed the self reliant airlines to virtual
spin downwards. Era Of Lease Aircrafts The short period of hey-day was completed
and bad days begun in the history of RNAC after the airlines started to lease aircrafts.
The RNAC management brought an Airbus 310-300 with a capacity of 221 from Polarus Holding
(USA) under lease at the cost of US$ 2750 per hour for two years - from 18 May 1994 to 17
May 1996. Although introducing Airbus into Boeing fleet is technically costly for the
small airlines like the RNAC, no one ever raised such questions then. As soon as the two years long lease with
Polarus Holding ended, the actual controversial designs of going into short-term aircraft
leasing began. This was followed by the era when the PAC and CIAA competed with each other
in summoning senior officers involved in those deals. After the departure of Airbus, the RNAC
management leased Boeing 727-200 series first from an international airlines of Brussels
and then similar type of aircraft from Yugoslav Airlines was also brought under two
short-term lease agreement. Then, RNAC management leased B757-200 aircraft from
Turkmenistan Air and then B737-200 aircrafts from Yugoslavia., Transero Airlines, and
Lauda Air. The RNAC also leased B757 from China South West Airlines for one year. Whatever their intentions may be, almost
all persons who signed the lease agreements landed in the CIAA and some of them were even
imprisoned. From former executive chairman B.K. Man Singh to Hong Kong Rana and Haribhakta
Shrestha including former minister of Tourism and Civil Aviation Tarinidutta Chataut, all
are fighting cases in the court regarding their decision over the leasing out aircraft. Although all political parties were
involved in the lucrative business of leasing aircrafts through different channels, the
professional and managerial parts of the RNAC’s capability were ignored. The
situation is now such that nobody wants to take a bold decision to bring an aircraft.
Everybody is convinced that no matter how fair a deal he forges, the process will land him
into troubles like his predecessors. Joint Venture in RNAC Since the airlines business is
capital-intensive one, it is virtually impossible for Nepalese private sector to start the
international airlines. Reviving the RNAC inviting certain reputed airlines for the joint
venture is the best option to keep the national flag carrier alive. Although a group is pursuing an idea to
privatize the RNAC, it is not like selling the brick factory or leather factory or similar
other public sector utilities since the airlines involves not only asset but the
overall image and credibility of a nation. Nepal’s privatization experiences of
the public sector utilities is not all sweet as none of the privatized companies are
making any profit and most of them are on the verge of ruin. The RNAC might have to suffer
similar fate if privatization is blindly pursued. Since Nepal has been promoting
development of tourism as a backbone of its economy, this policy will not work in absence
of reliable and strong national flag carrier. Experiences of Private Airlines The experiences of private airlines in the
domestic sectors have proved that Nepalese private sector has to go a long way in
developing their own capability to operate the airlines. Many private airlines have
already collapsed after taking huge amount of loans from many commercial banks. In the
last one decade Necon Air, Nepal Airways, Everest Air, Mountain Air, Lumbini Air and other
number of private airlines went out of business. Shangri-La Air is facing financial
problems. “Since Buddha Air and Cosmic Air have
just completed their five year and their aircrafts are still relatively new and do not
have to pay back the money, we have to see how they will do from now on,” said an
aviation expert. “Interestingly, Buddha Air and other private airlines have now
relative advantages since they can recover the operational cost.” At a time when Nepalese private sectors
which could not operate the domestic sector successfully, it is just their hollow dream to
claim to be able to operate the international sector. Operating international airlines
needs extensive investment. If the airlines is, for some reason, diverted to another
destination, it has to pay huge amount of money to put the passengers in posh
hotels. “There are many issues involved in the
closure of Necon Air but their ambition to operate flights to Patna and Varanasi
financially damaged them,” said an aviation expert. “An airlines has to pay the
landing and take off charges, ground handling and other things which will require very
deep pockets.” “It is extremely difficult task to
operate international flights by private sector. You require huge investment in operating
international flights. This is one of the biggest capital-intensive industries. If you
want to buy one brand new Boeing 757 aircraft, the cost of such aircraft is about US$ 90
million which is equivalent to Rs.7 billion. This amount is not a joke. Even if you buy a
second hand aircraft, it costs US$ 30 to 35 million. Even if the aircraft is bought in
lease purchase basis, the airline has to pay at least US$ 200,000-270,000 every month. And
this is just a rental charge,” said Mohan Khanal, managing director of the RNAC. Some private airlines have already procured
license to fly international flights. It remains to be seen how will the private airlines,
which are facing difficulties even in the domestic front, lead the successful
international venture at a time when world’s many airlines are coming up with latest
aircraft and new ideas. “If the RNAC collapses, no private
parties will be in a position to replace it. Nepal will have to rely on international
airlines to bring tourists to the country,” said another aviation expert. “If we do not strengthen our national
flag carrier, we cannot exploit the potential of tourism markets lying next door. Other
international airlines may start their operation but we cannot fully depend upon them.
Only a national flag carrier can support the tourism effectively,” said Tek Bahadur
Dangi, chief executive officer at the Nepal Tourism Board. RNAC’s Survival Despite all kinds of controversies and
rampant interventions, the RNAC is still surviving without any government support and now
is in the process of buying third aircraft. Had the government agreed to give bank
guarantee, the RNAC would have bought two Airbus in 1998. The RNAC has hardly received any
kind of support from the government. Private Airlines have at least secured loans from
private banks placing certain collateral but the country’s national flag carrier,
which holds the property of billions of rupees, is denied such facilities. “The RNAC has more than five decades
long reputation in flying. It has manpower and all other capabilities. If the government
supports the RNAC management, it will definitely turn into a strong and dependable
airlines. It is the unnecessary interventions of the government and political parties,
which destroyed the RNAC,” said Shrestha. According to Targets and Performance of
Public Enterprises 2002/2003, a report published by the Ministry of Finance, the capital
of the RNAC was Rs. 10 million at the time of incorporation in 1958. When it was
established in 1956 as an enterprise, the government handed over two old DC 3 aircrafts to
it. In the subsequent decades, the government
has not invested any share on it and what the RNAC is today is on its own. The government
often intervenes in its day to day affair. It is also not allowed to work fully
independently. In the last 12 years alone, the government sent more than a dozen of
managing director and executive chairman to run the RNAC. After deciding not to lease any more
aircraft in its fleet, the RNAC has started to make profits. The airlines has recovered
from virtually bankrupt position to the economically viable institution now. In the last
one year, the RNAC has already paid more than Rs. 1 billion debts to banks. It still has
to pay more than Rs 1.5 billion rupees to different institutions. “The financial situation has improved
a lot in the last seven months. Two years ago, the RNAC had a deficit of about Rs.2.58
billion and now the deficit has been reduced to Rs.1.10 billion. Because of recent
incidents, the deficit might increase by Rs.10-20 million. If the airlines operates like
this, we will be in surplus position within a year after paying all our remaining
debts,” said managing director Khanal. RNAC is rich in experiences and capability
and it can survive as a viable national flag carrier provided all the stakeholders
concerned build an atmosphere that is friendly to the aviation sector. “National Flag Carrier Is The Pride Of The Country” — Rabindra Man Singh RABINDRA MAN SINGH,
managing director of the Everest Travel Service, is a well-known personality in Nepalese
tourism sector. Singh, who has been in travel and trade sector for long, spoke to
SPOTLIGHT on various issues regarding the present crisis of national flag carrier.
Excerpts: At a time when many people are
talking about the need of privatization, what is the utility of national flag carrier? National flag carriers like Royal Nepal
Airlines Corporation (RNAC) needs to be strengthened to promote the national cause. It is
a pride of a country to have strong and reliable national flag carrier. National flag
carrier is related to the pride of the country. The government has to make every effort to
strengthen the airlines. Strengthening the national flag carrier should not be treated as
an agenda for playing politics but it should be made an essential policy by all the
parties concerned. The RNAC is our property and it is our asset and pride. We must not
kill it. Is it still possible to make the
RNAC strong and dependable? The RNAC has more than five decades long
reputation in flying. It has manpower and all other capabilities. If government supports
the RNAC management, it will definitely turn into a strong and dependable airlines. It is
the unnecessary interventions by the government and political parties, which has destroyed
the RNAC. Such intervention can be seen in other countries also but there are mechanisms
to overcome them. This is the best time for the RNAC to transform into a functional and
effective organization. What do you think about the recent
incident when all flights were disrupted after both aircraft of RNAC had to be grounded? The decision of the RNAC to purchase third
aircraft is a welcome step. Such decision should have been taken years ago. I don’t
understand why the board is not pursuing the decision quickly. We need quick actions. The
RNAC seems to be compelled to follow a lengthy procedure to lease an aircraft for short
term. What was the impact of the
incident? It has sent negative signals in the
international tourism sectors. Many tourists have to lengthen their stay. It has incurred
irrecoverable loss in the tourism sector. The RNAC should have alternative plans to deal
with situation like this and must take steps so that it never happens again in future. I
don’t think there is a need to privatize the airlines at this juncture. The RNAC can
still be transformed into a reliable and best airline. As an immediate past president of
Nepal Freight Forwarders Association, what do you think was the impact on the cargo
delivery sector? Although there are so many airlines
including the RNAC flying in international route, they have not given much importance to
cargo. We don’t have any airlines, which carries cargo to destinations appropriately.
All airlines including the RNAC neglects cargo sector. When the RNAC had direct flight to
Europe, our exporters could deliver the goods on time as demanded by the importers since
we could send the cargo within days. But the situation is different now and it takes weeks
to reach cargo to Europe. One of the best options is to tie-up the RNAC with other
airlines with cargo capability. We send 7,000 to 8000 tons of cargo every year. In other
countries, the air cargo comprises a big chunk of goods delivery market. “Only A National Flag Carrier Can Support The Tourism Effectively” — Tek Bahadur Dangi
TEK BAHADUR DANGI,
chief executive officer of Nepal Tourism Board, has been working in tourism sector for a
long time. Frank and bold person, Dangi has made tremendous effort to increase the tourist
arrivals in the country. When Dangi was appointed to the top position at the Nepal Tourism
Board last year, the country’s tourism scenario was bleak. Thanks to his constant
effort in promoting Indian market, the country has seen positive growth on the arrival of
Indian tourists. Dangi spoke to SPOTLIGHT on various issues. Excerpts: What will be the overall impact of
the recent suspension of operations of flights by the RNAC for a couple of days after both
its aircraft were grounded? The immediate impact was that Nepal-bound
tourists were stranded in different countries. If the flight schedules do not run
smoothly, our tourist arrivals will automatically reduce. This is a peak season and during
this season, the RNAC is almost always packed and getting its ticket is very difficult. At
a time like this the suspension of flights will definitely make the routes more crowded.
After all, such incident will tarnish the image of the country as a whole. It was a very
unfortunate incident. This year the tourist arrivals in May and June were very high. Had
RNAC increased its frequency of flights to India, the situation would have been much
better. In the month of October, almost all airlines were packed. When we are trying so
hard to increase the number of tourists, it is frustrating to see the RNAC being unable to
provide adequate seats to the passengers. How can more tourists come in such a situation? What is the reason for RNAC not
being able to cater effectively? It is natural to see such situation when
the RNAC has just two aircrafts with both running in tight schedule. It will take a lot of
time to make up the losses. The RNAC is flying night, day and morning flights. Since it is
the national flag carrier, the country’s image too is linked with the image of the
airlines. We cannot operate the country’s flag carrier in the existing situation. If
we have capability, we must buy two more aircrafts. If not, the RNAC should add at least
another aircraft. If the RNAC can have three aircrafts, it will increase its credibility.
There is adequate market for the RNAC since the national flag carrier can carry more
tourists from our two neighbors India and China. If we increase the frequency of flights
to destinations in India like Mumbai, Bangalore and Chennai, the flow of Indian tourists
will surely increase. Similarly, once the flights to Shanghai increases, the country would
have more Chinese tourists. If we do not strengthen our national flag carrier, we cannot
expect to exploit the potential of tourism markets next door. Other international airlines
may start their operation but we cannot depend upon them. Only a national flag carrier can
support the tourism effectively as we can coordinate with them easily. If we provide
reliable air service, it will not be difficult for Nepal to bring one million tourists a
year. Since Nepal Tourism Board has
initiated many tourism promotion programs in India, have you seen any changes in the
volume of arrival of Indian tourists? Demands in Indian cities are growing and we
require to add more flights to present destinations as well as in other new ones. We had
introduced Pashupatinath Darshan package in Chennai and other South Indian cities and we
found there was a tremendous response. The RNAC is now operating its flights to Bangalore
and Mumbai but there are tremendous demands of pilgrimage tourism in south India. Our
experiences have shown that we can bring a lot more tourists from South India provided our
flag carrier increases its flights. We need to start flights to Chennai and Hyderabad. Do you coordinate with RNAC to
promote tourism? We have to go for tourism promotion
together with airlines. It should be a joint effort. There needs to be competitive rates
and accessibility. We are working in perfect coordination with the RNAC. We have very good
understanding with them. Despite the best efforts made by the management, the RNAC cannot
meet its operational schedule because of many reasons – the most important being the
lack of aircraft. As long as the RNAC does not have the third aircraft, it is impossible
to make it reliable. We are working to promote the tourism but the ground reality is that
tourists cannot get air tickets of RNAC during peak season because it is always filled to
capacity. Show me a country, which wants to promote tourism relying on just two aircrafts.
We are getting a lot of support from international flag carriers like Thai International,
Indian Airlines, Qatar Airways, Martin Air, Gulf Air and others to promote the tourism.
However, it is much easier to work with national flag carrier because the decision-making
process is swift and there is close coordination as well. Our experiences have shown that
we can easily influence the decision making of national flag carrier. The process of other
international airlines is complicated. Recently, the Indian government has permitted three
private airlines to fly to Sri Lanka. I think it would be a good idea for the Nepal
government to take initiative to bring the Indian private airlines to operate in Nepal as
well. The Nepalese government has recently signed a very liberal Air Service Agreement
with China to increase the tourists flow. Air China and Eastern China Airlines are
studying the possibility. Two Nepalese private airlines have also recently secured license
to operate international airlines. Is there a market for increased
number of aircraft of RNAC? The market is definitely there. Once the
RNAC has more aircraft, the market will automatically increase. Nobody needs to be worried
about that. Recently, Sri Lankan Airlines has decided to buy seven aircrafts. This will
bring more tourists to Sri Lanka. We need a vigorous effort to enhance our capabilities.
If we just follow the policy to maintain status quo, it will not bring huge number of
tourists. But, don’t you think the
situation of insecurity could pose trouble? One of the interesting points is that not a
single tourist has been hurt in the last eight years of insurgency. There were sporadic
incidents of extortion and so on but largely it is still safe for tourists. Tourists have
also a lot of confidence regarding Nepal. The recent incident in Kanchanjunga will
definitely send a wrong message to the world. The Maoist have already declared that they
were not responsible for the incident and they will investigate it. What is the air-seat capacity of
Nepal? Nepal has Air Service Agreements with 32
countries and they are allowed to bring 4.2 million tourists to Nepal every year. But this
is in theory only. The actual volume of operational seats is very low. |
Send your feedback to the
editor: spotligh@mos.com.np |
