Cover Story (Spotlight Weekly)

CIVIL AVIATION POLICY
For Political Purpose

At a time when the government is unable to support and strengthen the Royal Nepal Airlines Corporation (RNAC) - the country’s only national flag-carrier with five decade long experiences and expertise - the recent decision to renew the Air Operation Certificate (AOC) of one and permitting another two private airlines to fly in the international sector has dragged the government into another controversy. The decision is surprising in view of the fact that the current number of international flights has already put strain on the infrastructures at the Tribhuwan International Airport (TIA). When many regional airlines with huge investment are coming into Nepal, how would Nepal’s private airlines – which are yet to prove their sustainability at the domestic sector – compete in the international arena is anybody's guess. As Nepal’s aviation policy is amended and changed at the whims of politicians, technicians and experts have little say. There is no country in the world where AOC is issued so easily without weighing in all the different aspects of airlines business

By KESHAB POUDEL

Although the three airlines are yet to disclose what types of aircraft they would operate in their schedule and how would they arrange finance, the government has issued the AOC to Air Nepal International, Shangri-La Air and Cosmic to fly international sector.

Air traffic controllers : Shrinking sky space

Interestingly, the Air International was given the AOC to fly to 13 sectors at par with the RNAC – which owns two Boeing 757 aircrafts and expertise of more than five decades. With this decision by the Ministry of Culture, Tourism and Civil Aviation, the aviation policy makers have exposed their utter indifference towards the national flag carrier - which is yearning for rescue.

Despite many complications and difficulties in operating international airlines, every Tom, Dick and Harry can obtain the AOC in Nepal - not much unlike awarding the license to operate microbuses at the Ring Road.

After distributing AOC to the three airlines to fly international sector, the authorities, however, have added conditions restricting new registration in future. The government has placed a condition that any airlines, which want to fly international sector must place the deposit of Rs. 500 million (US$ 7 million) from now on.

The three ‘lucky airlines that are permitted for international flights are Air Nepal, Shangri-La Air and Cosmic Air. Shangrila Air and Cosmic Air are at least operating domestic aircrafts now but some of the promoters of Air Nepal are yet to pay back their bank loans that were taken to fly the Nepal Airways - which is now defunct.

Interestingly, the AOC of Air Nepal International was cancelled in 1, May 1999 but was renewed as one of the promoters of the airline is reported to be a close relative of prime minister Sher Bahadur Deuba.

The History of Private Airlines

With the liberalization of the aviation sector in 1993 and the implementation of open sky policy, Nepalese private sector stepped in to operate domestic airlines. In the first phase, Necon Air, Everest Airlines and Nepal Airlines were allowed to operate in the domestic sector. Within a few years, many other new airlines joined the market. Today there are 13 airlines in domestic sector and five in international sectors.

Few years after their experiences in domestic markets, some airlines demanded AOC for operating international flights. The government has already issued AOC to five domestic airlines in 1998 including Alpine, Necon Air, Everest Airways, Air Nepal International and Nepal Trans Continental to fly international sector.

Soon after receiving the AOC, Necon Air – which also successfully operated domestic flights – started international flights to the Indian city of Calcutta, Benaras and Patna through its Turbo prop ATR-42 aircrafts.

Aviation experts hold the view that operating international sector is one of the reasons behind the subsequent bankruptcy of the Necon Air - which operated flights from Biratnagar-Calcutta and two flights on Kathmandu-Patna and Kathmandu-Varanasi sector. Although the Necon Air operated its flight in Patna and Varanasi, it could not bear the high operation cost. The airline – which showed promising future in domestic sector – collapsed thereafter.

Although the government policy clearly lays down certain conditions on the types of aircrafts to be used and other matters, the government has issued the AOC without demanding the type of aircrafts they will bring in and their technical capabilities. According to the National Civil Aviation Policy 2050 (amended 2053), the aircraft for the international airlines need to be of high standard, they shall be selected and operated with the long-term approach of minimizing repair and maintenance costs as well as operating costs and ensuring fleet uniformity.

Whether in issuing the AOC to the domestic airlines or international airlines, nobody needs to present proposed flight vision to the ministry. It seems that the authorities are more concerned to issue the license rather than evaluate the operation cost and its sustainability. Because of this weakness, more than half a dozen airlines have gone bankrupt and the government has already cancelled half a dozen AOCs.

Four years ago when the Royal Nepal Airlines Management proposed a long-term approach to lease wide body aircrafts and aircrafts of domestic trunk roots, it was flatly rejected on the ground that the policy was drafted to portray their point of view.

Although the proposal was based on the analysis of all the aspects including global, regional acceptability, maintenance support, financial analysis and other things, the matter of leasing aircraft landed into a major political controversy. Some of the senior employees including senior managerial staffs are still facing trials at the court.

Capital Intensive Industry

Airline is one of the biggest capital-intensive industries. From leasing aircraft to operation, it involves million of dollars. Since the region is very competitive in terms of airlines, Nepalese investors – who have been unable to sustain in the domestic market – will have very difficult time.

Along with technical issues, the financial matter is one of the important aspects of the international airlines. Who will invest the money? How many Nepalese banks are really interested about it?

From purchasing aircraft to lease purchase or short term and long-term lease, the operator has to dole out a huge amount of money. The price of brand new aircraft like Boeing 757 is US$ 90 million. Even if the aircraft is bought in lease purchase basis, the airline has to pay at least US$ 200,000 – 300,000 a month.

One of the other expensive parts of the international airlines is the ground handling and deposit for aviation fuels. If an airline is diverted due to weather conditions and other technical reasons, it has to bear a lot of liability. An airline has to bear Rs 3 million loss during a single conciliation of its flight.

Some private airlines, which have already procured Air Operator Certificate (AOC) – have to compete with the airlines with latest aircrafts, strong pool of expertise and sound financial position.

An operator needs to invest 15-25 million dollars just to lease an old aircraft. Along with lease cost, there require maintenance cost, spare parts cost, and operation cost including civil aviation charges. Aviation fuel charges are other expensive items for operation of international aircrafts.

In the last one decade, more than a dozen of private banks have landed in financial difficulties following the closure of private airlines. From Necon to Nepal Airways and Mountain Air to Lumbini, they owed billions of rupees of loan to the banks.

At a time when Nepalese private airlines are yet to pay billions rupees of debt, no one is in a position to invest public money in aviation industry. Since the banks had earlier invested to the private airlines by taking aircraft – which is owned by the other party – as a collateral, the banks do not know how they could recover their loan.

In the recent months, banks have placed public notices about the auction of property placed as collateral. But nobody knows how these banks can collect the loan through selling the property.

At a time when the country has been passing through the bloody insurgency and endless political instability, the annual tourist arrival is also not satisfactory. The tourist arrival improved in the year 2003 compared to the previous years but it is still inadequate.

Since the air seats allocation is governed by the bilateral agreement between the two countries, these airlines require fulfilling many formalities and procedures even after securing AOC.

Following the operation of India’s largest private airlines Jet Airways and Air Sahara, the Indian sector is too competitive. Indian Airlines and Royal Nepal Airlines were traditionally serving Kathmandu-Delhi route. Indian private airlines were allowed to fly international sectors only after their proven capability in domestic markets.

In Nepal, the AOC has been issued to those promoters who have bad experiences in the domestic sector. “I don’t think they will bring in any aircraft soon. What the so called promoters of the airlines want to do is hold the license to sell it in case a big foreign buyer steps in,” said senior officials at the Ministry of Tourism, Culture and Civil Aviation.

According to the bilateral agreement between Nepal and India, two country’s carriers are allocated 6000 weekly air seats one-way. Likewise, 3700 weekly air seats are allocated for the air carriers of Nepal and Thailand, as per the bilateral agreement.

Bitter Experiences

Thanks to the loophole in the Civil Aviation Regulations, many aircraft owners - who leased out their aircraft to Nepal – are facing troubles. In other countries, the aviation regulations protect the rights of the owner but Nepalese regulations protect the rights of operators. The Civil Aviation Authorities punish the owners of aircraft for not paying airport charges.

One can see dozens of aircrafts grounded at the backyard of Tribhuwan International Airport. Thanks to the airport’s financial due owed by bankrupt airlines, civil aviation authority does not allow the owner to fly out their aircrafts that were leased to the operators.

Because of the Civil Aviation Authority’s stance, two ATR 42 aircrafts leased by Necon Air, one Dornier Aircraft operated by Everest Air, one Avero and one Y12 by Nepal Airways are lying idle at the airport.

“When owners of small aircraft have already been harassed by operators and civil aviation regulations, no reputed companies will lease their aircraft to Nepalese operators,” said civil aviation experts.

Although more than half a dozen private domestic airlines were declared bankrupt in the last twelve years, they are yet to pay millions of rupees to the Civil Aviation Authority as dues of take off, landing and parking charges.

Cosmic Air has already announced that it will begin its international operation leasing out Fokker -100 aircrafts to few destinations in the region from coming season. Air Nepal is said to be eyeing to lease an aircraft to operate in 13 destinations like that of Royal Nepal Airlines.

In other countries, the civil aviation authority issue license only after auditing technical and financial aspects of the airlines. Before issuing the AOC, such authorities also audit the types of aircrafts, the ages and technical facilities. Interestingly, the licenses are issued in Nepal without any such evaluation.

“I don’t understand how they can renew a license to a business group – which earlier had declared bankruptcy,” said an air operator. “This is a gross violation of rules and regulations. If you are a favorite of the minister, you can receive license whatever the conditions.”

Over Crowded

Necon aircraft : Failure to sustain

Since being declared as the international airport in 1964, Tribhuwan International Airport (TIA) has seen drastic changes in terms of facilities but they are still inadequate.

According to the Tribhuwan International Airport office – which occupies 320 hectors of land with 10,000 feet x 150 ft long runway – has a new terminal building inaugurated in 1990. In the last ten years, some infrastructures were added and expanded in the international airport.

Since there are 13 international airlines that are operating flights to Nepal and another international airline that is poised to operate its scheduled flights from next month, adding the aircrafts by three other Nepalese airlines will make the international Airport congested. The average annual growth rate in international traffic is registered at 2.80 percent. The total number of passengers handled in 2002 was 1063870 compared to 977948 in 2001.

According to the Civil Aviation Authority Nepal (CAN), there was total movement of 24588 aircraft in 1992, which increased to 65163 in 2001. The airport handled more than a million passengers in 2002.

Royal Nepal Airlines, Indian Airlines, Biman Bangladesh, Jet Airways (India), Thai International Airways, Gulf Air, Qatar Airways, Air China, Royal Bhutan Airways, Martin, Condor and Austrian Airlines Group are operating their flights. Air Sahara – another private Indian airlines – is scheduled to operate its service from next month.

Since the airport does not have transport facilities and tube, every airline prefers to park their aircraft at nearest point. If Nepalese private airlines start their operation without construction of parking lot, they will create problems for other international airlines as well.

If three Nepalese private airlines operate a few international flights and park their aircraft at TIA’s apron for whole optimum time, it will create congestion.

The Tribhuwan International Airport (TIA) – the country’s only airport – is overcrowded. From parking apron to other navigational facilities, all need to be updated. Since there are only four hangers - one each owned by Royal Nepal Airlines Corporation and Royal Nepalese Army; and two under VVIP flight control - private airlines will have to fly outside the country for minimum level of maintenance.

Although the land is allocated at eastern parts of the Tribhuwan International Airport for the purpose of constructing hanger, no private airlines have shown any interest to build it since it costs a lot of money.

Nepal has signed air agreement with more than 32 countries and there are more than 4 million air seats available for Nepalese airlines. Among the countries with Air Service Agreement, 19 destinations in 11 countries have air links with Tribhuwan International Airport. Remaining countries have a little market options.

RNAC’s Interest Sacrifice

In other countries of the world, no deal is made sacrificing the interest of the national flag carrier. But Nepal is a country where the RNAC’s interest is hurt anytime and every time a decision is made.

Whatever one can say about the RNAC, Nepalese private sector has to work for many more decades to be able to be as experienced as the RNAC. The strength of RNAC is its long expertise, experience and credibility.

As a national flag carrier, it also secures certain rights. Nepal’s private airlines should fly international sector not at the cost of RNAC but at its prosperity.

National Civil Aviation Policy 2050 (Amended 2053) also stresses the need to strengthen the airlines. The policy says, “His Majesty Government shall look for foreign airlines to be joint-venture partner to make investment in the Royal Nepal (International) airlines. The airlines from the private sector currently in operation and other private investors shall also be invited to make investment thereon on a priority basis.”

Loop Holes in Aviation Regulations

Gulf Air's office : New Marketing strategies

Aviation experts argue that there are many loopholes in aviation regulations that give playing fields. The policy has also given unlimited discretionary power to the government. According to Nepal Civil Aviation Act, the government can change the regulations as and when it so desires.

Thanks to the frequent changes in the regulations, Nepal’s civil aviation policy is unstable. “We need to have strong regulatory mechanisms equipped with necessary authorities,” said a former director general of Civil Aviation Authority.

Since the government has prerogative rights in the appointment of the board members at CAAN, the ministers often sacrifice the interest of professionals who have a long expertise.

Thanks to the loopholes in the regulations, the government can issue license with different conditions for different airlines. “This regulation gives authority to government to impose discriminations," said a CAAN insider.

Although the government has already issued AOC to five Nepalese private airlines to operate international flights, it is too early to predict how they would operate. One thing is certain that the operation of airlines is not as simple as operating microbus. When country’s five-decade-old national flag carrier is struggling for survival, one cannot expect Nepalese private airlines who are at infant stage of airlines business could replace it.

International Air Traffic Movement at TIA 1998 -2002 July

Year A/C Pax Cargo

1998 8261 1044002 13862959

1999 8426 1100331

2000 8105 1061343

2001 7994 977948 13565476

2002 8126 1063870 17001302