Wide Body Procurement Fiasco! A Storm Over A Tea Cup?

NAC estimated the possible price of A330-200 based on the price indicated in MOU signed between NAC and Airbus on 5th Nov 2009.

Jan. 17, 2019, 3:06 p.m. Published in Magazine Issue: VOL 12 No.12, January 25, 2019 (Magh. 11 2075) Online Register Number: DOI 584/074-75

It seems that highly publicized so-called Wide Body scandal of national flag carrier Nepal airlines Corporation may likely to turn out to be proverbial storm over a tea cup. The parliamentary committee Public Accounts Committee (PAC)formed a subcommittee, headed by a member of parliament from Nepali Congress Rajendra Kumar K. C., to investigate the procurement of two Wide Body aircraft by NAC. The subcommittee submitted the report on 2nd Jan 2019. The report suggests that the subcommittee has dropped the charge of corruption against personnel involved in the purchase of two A330-200. Instead the report indicated that due to certain wrong decisions, NAC incurred a whopping loss of USD 38.8 million. Under the condition of anonymity, a high official of NAC provided evidences to prove that the calculation done by PAC is totally misleading and without any basis or proof. The source suspected certain hidden reasons for PAC to make such a preposterous conclusion.

The loss of USD 38.8 m, as per subcommittee report, is calculated under three headings- difference between 230 ton and 242 ton as Maximum Take Off Weight (MTOW), miscalculation of estimated price of A330-200 before publishing RFP notice and the (mis-)use of price escalation formula. The evidences furnished by the source in NAC clearly indicate that the aircraft supplied by AAR consortium is designed for 242 ton capability and purely due to technical reasons and due to saving in operational expenses as well as advice from Airbus, NAC decided to go only for 230 ton certification. So, NAC does not accept the blame of incurring loss of USD 8.4m, instead NAC will save about USD 100 thousands every year in operational cost. As to the rumor that 230 ton MTOW will not allow direct flight to Sydney, NAC engineer clarified that due to airport restriction in Kathmandu, only 217 ton is allowed, so it makes no sense to opt for 242 ton certification and go on paying more operational expenses due to additional 12 ton certification. Moreover, NAC's business plan has envisaged that flight to Sydney will be via Sydney as it will generate more revenue.

NAC estimated the possible price of A330-200 based on the price indicated in MOU signed between NAC and Airbus on 5th Nov 2009. As per price revision formula furnished by Airbus as their global standard and as per international practice in aviation industry, estimated price of first Wide Body delivered in June 2018 will be USD 117.38m and that delivered in July 2018 will be 117.65m. So, the loss of USD 23.6m as indicated in the subcommittee report makes no sense at all, the NAC source claims.

Finally, as per industry practice of using escalation formula all over the world and as per Sale Purchase Agreement (SPA) signed on 25th March 2017, the delivery price of each aircraft was calculated and final payments done accordingly. So, NAC source claims that it is grave injustice to blame NAC for incurring a loss of USD 6.8m.

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