by Sangam Prasain in The Kathmandu Post, Nov 19, 2022
Nepal Airlines has finally decided to sell its troublesome Chinese planes and spare parts after nobody came forward to lease them despite a deadline extension.
Plagued by breakdowns and lack of pilots, the three 17-seater and two 56-seater aircraft had turned into “the most expensive white elephants in the carrier’s history” right after they arrived, officials said.
State-owned Nepal Airlines has been eager to get rid of the non-flying planes, but bureaucratic hassles forced it to hold on to them even as losses mounted. Officials doubt there will be anybody wanting to buy them too.
The five condemned planes—three 17-seater Y12e aircraft and two 56-seater MA60 aircraft—are parked at the remote parking bay on the eastern side of Tribhuvan International Airport in Kathmandu. A sixth aircraft crashed in Nepalgunj and is unflyable.
The Y12e is a twin-engine turboprop utility aircraft built by Harbin Aircraft Industry Group, previously Harbin Aircraft Manufacturing Corporation.
The MA60 is a turboprop-powered airliner produced by China’s Xi’an Aircraft Industrial Corporation. Both manufacturers are subsidiaries of AVIC.
On September 14, the national flag carrier put the Chinese planes up for lease. Prospective bidders were given an October 31 deadline. As there were no bids, the deadline was extended until November 16.
“We didn’t get a single bid during the extended time either,” said Archana Khadka, spokesperson for Nepal Airlines. “Now the management has decided to sell them off.”
Khadka said that after Sunday’s elections, they would issue a notice to appoint an international assessor to determine a fair market value of the planes.
“It may take two to three weeks to appoint the assessor. Based on the assessor’s report, we will float a global tender to sell the planes,” said Khadka, adding that it would take at least two months to complete the process.
Eight years after acquiring the Chinese planes that Nepal Airlines had hoped to fly on underserved mountain routes, the carrier has decided it doesn’t want the albatross around its neck anymore.
Except for operating services to a few airports in the Tarai plains, these aircraft spent more time on the ground than in the air even in operating hours, and they were becoming a financial stress to the debt-ridden national flag carrier.
The Chinese planes have been grounded for more than two years.
Nepal Airlines said that they followed the Finance Ministry’s instructions to get rid of the Chinese planes. Out of the two options recommended by the Finance Ministry—dry lease or outright sale—Nepal Airlines tried the first one.
“As there are no takers, we will try the second option now,” said Khadka.
In November 2012, Nepal Airlines signed a commercial agreement with the Aviation Industry Corporation of China (AVIC), a Chinese government undertaking, to procure six aircraft—two MA60s and four Y12es.
As part of the deal, China provided grant and concessional loan assistance worth 408 million Chinese yuan (Rs6.67 billion) to purchase the six aircraft.
Out of the total aid money, a grant worth 180 million yuan (Rs2.94 billion) went to pay for one MA60 and one Y12e aircraft; and a loan worth 228 million yuan (Rs3.72 billion) was used to purchase one MA60 and three Y12e aircraft.
The Nepal government has to pay annual interest at the rate of 1.5 percent and a service charge and management expenses amounting to 0.4 percent of the overall loan taken by the Ministry of Finance as per the agreement.
The ministry, in turn, would charge Nepal Airlines annual interest at the rate of 1.75 percent on the disbursed loan amount.
As per the November 2012 agreement, China had given a seven-year grace period under which Nepal Airlines would not have to pay interest and instalment payments.
The payback period of the loan is 20 years or by March 21, 2034. The planes have completed the seven-year grace period privilege.
“As the Finance Ministry has instructed us to lease out or sell the planes, it’s now irrelevant that two of the six planes were gifted by China,” said Khadka.
Nepal received the first batch of planes in 2014. The delivery of the rest of the Chinese aircraft was stalled for years after issues appeared in the first batch.
The second batch of MA60 and Y12e aircraft arrived in January 2017 as part of the six-aircraft deal between Nepal and China.
The corporation received the final two Y12e aircraft in February 2018.
Nepal Airlines has repeatedly said that the Chinese-made planes were causing heavy losses ever since they were acquired, and that it wants to get rid of them to stop further losses.
The Finance Ministry is the owner of the planes and Nepal Airlines is the operator.
The ministry gave the green signal to Nepal Airlines to lease out or sell the planes in March 2021.
In July 2020, the board of directors of Nepal Airlines unanimously decided to stop flying the Chinese planes.
They have been a financial disaster for Nepal Airlines right from the beginning. One Y12e was damaged beyond repair while one of the two MA60 aircraft has been cannibalised for parts.
In 2014, marking the beginning of what was supposed to be a new era for Nepal Airlines after acquiring the planes, it had even changed its classic red and blue stripes livery, opting for a more modern design.
But these planes never brought happiness and money, said officials.
Nepal Airlines—which is known for its poor service, planes being grounded most of the time and frequent management changes—has been eviscerated by politicking.
Every time a new management team comes in, it begins the process of replacing the Chinese planes with new Western-made regional turboprops.
https://kathmandupost.com/money/2022/11/19/chinese-planes-to-go-under-the-hammer
