NAC, National Flag Carrier, What Went Wrong : An Analysis

According to the business plan, duly approved by NAC Board, two Wide-Body should generate gross revenue of about USD 80 million per annum, which is a comfortable amount to pay installment to two lending agencies EPF and CIT

July 27, 2019, 8:22 p.m. Published in Magazine Issue: VOL 13 NO 02 ,Aug.02 –22 Aug., 2019(Sharwan 17, 2076) Online Register Number: DOI 584/074-75

SLOW POISON

Until late eighties, the national flag carrier Nepal Airlines Corporation (NAC) was one of the best airlines in South Asia with 19 aircrafts. On domestic sector NAC was having services to almost three dozen airports in the country. International service was also thriving with flights to London, Paris, Frankfurt, Shanghai and Japan. Due to a number of reasons, from early nineties, the fleet size started diminishing, which forced NAC to curtail flights in both domestic and international sectors. Then blame game started. Although lack of aircrafts was the main hindrance to growth of business, NAC management and work force were blamed for this continuous debacle of national flag carrier. It is a clear case of private sector influencing politicians and top bureaucrats to administer slow poison to national flag carrier.

How can NAC workforce, who excellently managed to operate flights from Humla, Lukla to London, Japan overnight become inefficient and lethargic? How come the same work force, who managed to make NAC the best airline of South Asia, all of a sudden became worst ones among all employees in two dozen ministries and three dozen public sector organizations of the country? For more than two decades, the government, the sole owner of the airline, neither bothered to analyze root causes of demise of NAC, nor took any steps to expand fleet both in domestic and international sector. In the meantime, NAC was declared as an inefficient public entity, and government laid red-carpet to a whole bunch of private domestic airlines as well as foreign airlines in the name of economic liberalization.This resulted in the number of foreign airlines coming to Kathmandu increased from just eight airlines in 1990 to 30 airlines at present.

PROCUREMENT LAW, BOEING & AIRBUS

Government made a surprise decision on 2nd Nov 2008 to appoint SugatRatnaKansakar, who was working in telecommunication field for 34 years, as CEO of national flag carrier. He changed NAC’s strategy from ‘management improvement first, then fleet expansion’ to ‘expansion strategy followed by management improvement’. The first hurdle for expanding fleet was the law named Loan and Guarantee Act, 1968, which explicitly states that Government of Nepal cannot give guarantee for loans taken by any public organizations. At the request of NAC, government amended the law allowing guarantee exclusively for purchase of aircrafts by NAC. This was a land-mark game-changer for NAC’s future.

Nepal was operating aircrafts manufactured by an American company Boeing for the last 47 years. Boeing entered Nepal in the year 1971 with acquisition of two B727. By the year 1989, NAC had four Boeing jets- two B727 and two B757. Then after a gap of 21 years, on 7th April 2009, NAC published a tender notice for procurement of six aircrafts, two Wide-Body & four Narrow-Body.

Before going for international tender for six aircrafts, the then NAC Management had tried its best to avoid international bidding. NAC was in favor of directly negotiating with Boeing and purchase appropriate models of aircrafts manufactured by Boeing only. But the then law (Public Procurement Act) did not allow for any direct purchase of any equipment or material. Only way to avoid tendering process was to make a decision by Council of Ministers. NAC management approached Ministry of Culture, Tourism and Civil Aviation (MOCTCA) requesting for initiation to get Cabinet decision to go for direct negotiation with Boeing and go on purchasing aircrafts as per requirement of NAC. A highly confidential source has confirmed that the then US ambassador even wrote a letter to the then Prime Minister requesting for purchase of new aircrafts from Boeing. Apparently, the then government ignored the request, and instead directed NAC to go ahead with International Competitive Bidding (ICB).

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Public notice for procurement of six aircrafts published on 7th April 2009 allowed only aircraft manufacturing companies to bid in the global tender. Accordingly, only Boeing and Airbus submitted the bids. Boeing did not quote the price for Wide-Body, and quoted about USD 44 million for Narrow-Body. Whereas airbus quoted about USD 42 million for Narrow-Body, and about USD 90 for Wide-Body. According to a source in NAC, it was virtually impossible to approve Boeing’s offer and reject Airbus’s proposal due to detailed evaluation guideline stipulated in Public Procurement Act. The NAC Board approved offer of Airbus.

WIKILEAKS & BIG BROTHER

After board decision and after payment of commitment fee of half a million dollar to Airbus, highly publicized controversy was created without any basis according to the source. Three agencies- Ministry of Finance, Parliamentary Public Accounts Committee and anti-corruption agency Commission of Abuse of Authority went into action to block Airbus deal, which resulted in delay of arrival of two narrow body aircrafts by six years. Later-on a prominent vernacular daily newspaper published a news with evidence, quoting Wikileaks that an official of US State Department in Washington called the then secretary of Finance Ministry of Nepal requesting for cancelation of NAC’s deal with Airbus. This is one example which proves that in foreign policy matters, the government machinery including politicians and top bureaucrats are always influenced by Big Brothers like New Delhi, Washington, Beijing and Brussels. The so-called scandal was eventually quashed after Supreme Court finally gave verdict on 24th April 2012 categorically indicating that there was no corruption and/or irregularity on the procurement process followed by NAC.

AIR-MAFIA DOMINATION

Headline news in local media in January 2009 of NAC's ambitious fleet expansion plan created quite a stir in country's aviation scene. Consequently, according to grape-vine in travel and tourism circle of the country at that time, few unscrupulous businessmen started covert as well as overt campaign against NAC's new expansion strategy, especially to thwart entry of Wide-Body in NAC's fleet and to protect competitive advantages of few foreign airlines. One cannot also ignore the fact that there is possibility of situation being aggravated by usual phenomenon of noise created by unsuccessful bidders in any kind of tendering processes. Occasional unhealthy competition in trade and industry is a universal phenomenon, and Nepal cannot be an exception,andhence NAC took it-lightly.

“PARALLEL POWER-CENTER” PAC

The then NAC management, therefore, took this launching of tirade against procurement process and so-called irregularities as normal affair which usually happens in democratic societies with press freedom. But what was unfortunate in this particular case was that exceptionally detailed scrutiny of the procurement process was carried out by parliamentary committee PAC and ultimately PAC conclude that the whole procurement process was illegal. Although PAC did not bother to specify any clause or sub-clause of Public Procurement Act, PAC instructed CIAA to act tough against NAC. CIAA was already investigating the issue since November 2009. CIAA continued investigation until December 2010, which ultimately culminated in the filing of case by Commission of Investigation of Abuse of Authority (CIAA) in the Special Court, thereby derailing the entire fleet expansion project of NAC. But CIAA lost the case both in Special Court and Supreme Court. The full text of this land-mark judgment of Supreme Court contains an important statement, which says that if any decision, made within the limit of an established norm, tradition or profession, is termed as an ill-intentioned decision without any substantial and reliable proof, it will result in the lowering of executives’ decision-making capability and risk-taking ability, which ultimately create a situation where the organization and the society will suffer negative consequences. The Supreme Court judgement also made a serious remark that parliamentary committee PAC’s intention to become a “parallel power-center” could be considered as an extremely complex and debatable problem. After this final decision from Supreme Court on 24th April 2012, NAC decided to go ahead with the same aircraft procurement process and finalized deal with Airbus Company to purchase two narrow-body aircrafts A320s, of course, with escalated price due to five years delay. The two A320s landed in the first half of 2015. Question remains- what did NAC and for that matter the state gained from this five-yeardelay in acquiring two aircrafts? Public at large have right to know whether more than one year of investigation of that so-called aircraft purchase scandal was carried out due to really strong suspicion of corruption or due to intentionally exaggerated campaign by few unscrupulous elements with their hidden agenda. The Supreme Court judgment clearly suggests that later may be the truth.

SOBER BOEING LOBBY

Actually, when NAC was debating and analyzing about possible alternatives in the aftermath of Supreme Court’s decision, Boeing lovers and lobbyists in Kathmandu could have swung into action to easily block decision on an “old” global tender which was floated three years back. American Embassy could have requested Government of Nepal, formally or informally, to go for re-tendering, which is allowed by law. If the Boeing lobby in Kathmandu is really serious, they could have easily influenced tourism ministry and NAC management to opt for one more round of competitive bidding or for direct negotiation with Boeing company. May be due to strong statement used in Supreme Court’s judgement criticizing both Public Accounts Committee and CIAA for suspecting corruption or wrong-doing in the procurement process without any basis, Boeing lobby did not dare to make further fuss. But the ‘air mafia’ managed to block purchase of Wide-Body aircraft. Although the tender (RFP) document for six aircrafts clearly stated that the first phase of delivery shall be one Wide-Body and one Narrow-Body, NAC settled for two Narrow-Body aircrafts. It is to be noted that entry of Wide-Body with potential of long-distance routes will help Nepal to come out from the category of most expensive air-destination in the world. But ‘air-mafia’ wants Nepal to be always an expensive air-destination due to obvious reason.

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The source in NAC says that after acquisition of two narrow-body A320 aircrafts from Airbus in the year 2015, it is just not possible to purchase two wide-body from Boeing. No airlines in the world can afford to operate two Airbus and two Boeing aircrafts due to high cost of operation and maintenance of two types of fleet. So, NAC opted for tendering which allowed offers only for Airbus, which culminated in the acquisition of two wide-body A330-200 aircrafts.

AIR MAFIA- SEQUEL

Presently, almost in line with proverbial ‘history repeating itself’, the purchase of two Wide-Body A330-200 aircrafts has again attracted attention from various quarters. Ground reality is that it is not the decision of only NAC to induct two Wide-Body jets, but the budget of fiscal year 2073/74, which is duly approved by Council of Ministers as well as from parliament, also envisaged the purchase of two Wide-Body aircrafts, which is in tune with NAC's expansion strategy. NAC’s vision is to launch direct non-stop flights to Japan, South Korea and Saudi Arabia after acquiring two A330s.Launching of non-stop flights to Japan, Korea and Saudi Arabia shall be the beginning of NAC’s ambitious plan to spread its tentacles to center of gravities of out-going tourists in far-flung areas like North America, Europe, Australia, Russia etc.

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FLIP-FLOP OF TWO PARLIAMENTARY COMMITTEES

Based on procedure stipulated in Public Procurement Act 2063 and adhering to the step by step process outlined in the financial rule of NAC, a tender was floated on 26th Sept’16, which was participated by 11 bidders. On 15th Nov’16 and on 25th Dec’16, one parliamentary committee named International Relation Committee summoned tourism minister, tourism secretary and NAC MD to get information about Wide-Body tender. As there was no comment or instruction from IRC, NAC Board made final decision on 16th Jan 2017 to award this Wide-Body purchase tender to the lowest bidder, the Consortium of US based AAR Corp, German Aviation Capital and Portugal based HIFLY Company. Then, on 5th March’17, another parliamentary committee named Public Accounts Committee (PAC) summoned tourism minister, tourism secretary and NAC MD to enquire about Wide-Body procurement. As there was no further instruction or comment from PAC also, NAC sent first instalment of USD 79 million on 19th June’117. Probably at Air-Mafia’s behest the tirade against NAC’s decision continued for months in media, but the purchase process continued with business as usual environment within NAC. There was no indication of disapproval or any remark by the two parliamentary committees PAC and IRC. Subsequently, second installment of USD 80 million sent on27th June’18 and third final installment of USD 80 million sent on 25th July’19. The two Wide-Body finally landed in the middle of the year 2018. Then IRC again summoned tourism minister, tourism secretary and NAC MD on 23rd Nov’18, followed by PAC also swung into action by first summoning them on 25th Nov’18, and also on 5th Dec’18. PAC constituted an investigation sub-committee. The sub-committee submitted report which stated that NAC made calculation mistake amounting to more than USD 40 million. It is to be noted that report did not use the word “bribe”. And Coordinator of the Sub-committee formed by PAC has already stated publicly that there is no local commission agent in Wide-Body deal. Asked about this calculation mistake of such a large amount of money, senior engineers, pilots and charter accountants, involved in the entire procurement process, have categorically said that they are hundred percent confident that there are no mistakes what-so-ever in their calculation.

POLITICAL BLAME GAME

To the utter surprise of NAC management, more vigorous campaigning and publicity about so-called irregularities and corruption in the purchase of two A330-200 is again being launched just after the arrival of two aircrafts. According to high officials of tourism ministry and NAC, there can be number of reasons for this abrupt eruption of “totally misleading, fictitious and fake charges” against NAC’s historical Wide-Body acquisition project, especially after smooth and flawless execution of the entire project with pro-active support from government and fantastic help from two lending agencies Employees Provident Fund and Citizens Investment Trust, and the country's Central Bank NRB. Series of media campaign against NAC’s acquisition of two Wide-Body aircrafts clearly indicates blatant involvement of ‘air-mafia’ who are hell-bent in obstructing entry of NAC’s flights to lucrative sectors. It must be emphasized here that in spite of more than two dozen foreign airlines coming to Kathmandu, Nepal is still one of the most expensive air-destination in the whole world. In addition, “Wide-Body corruption scandal” is visibly exaggerated by politicians from both ruling and opposition parties clearly targeting present government. Public has already suspected that Wide-Body issue is deliberatelyboosted up to defame Prime Minister KP Oli.

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INDIVIDUAL TALENT

Of course, public at large will definitely welcome constructive criticism as well as scrutiny from authorized institutions, if and only if there is strong reason to suspect possible irregularity or corruption or violation of prevailing laws. But the State must ensure that innocent officials of NAC are not demoralized or harassed or defamed unnecessarily. NAC management claims that there exist great inherent individual talents in NAC, who are even being admired by foreign experts, and they took this Wide-Body project as a challenging task not only in the interest of the national flag-carrier, but also for the sake of giving impetus to the entire tourism sector. There cannot be second opinion that individual talent of employees matters in the progress of any organization, but “even that needs an institutional framework to transform it into a positive force”, in the words of authors of the book ‘Why Nations Fail”.On the contrary, it seems PAC and few politicians are hell bent in defaming talented executives who beautifully executed Wide-Body project on time and without compromising quality, which itself is great achievement compare to other projects like Melamchi, Upper Tamakoshi etc. Moreover, it is high time that the state realizes the importance of national flag carrier for exponential growth of foreign tourist arrivals in the country, and take this first entry of two Wide-Body aircrafts in the country as a great-leap-forward ventured by NAC's talented workforce. The state, therefore, must make sure that NAC employees are motivated further to venture in more and more ambitious projects in days to come.Presently, as per instruction from PAC, CIAA is investigating in detail about the authenticity and correctness of the serious charge made in PAC’s report of calculation mistakeamounting to more than USD 40 million during procurement process. The entire workforce of NAC, especially those executives with excellent individual talents, are eagerly awaiting final verdict from CIAA.

OPERATION DERAILED

First commercial flight of first Wide-Body took placeon 1st Aug’18 and that of second Wide-Body on 24th Aug’18. Then, there was abrupt change of guard in NAC management. Government appointed a new Executive Chairman Madan Kharel on 16th Sept’18. The responsibility of total management of NAC, including entire operation of two newly arrived Wide-Body, was given to the new CEO. According to the business plan, duly approved by NAC Board, two Wide-Body should generate gross revenue of about USD 80 million per annum, which is a comfortable amount to pay installment to two lending agencies EPF and CIT. But, as of today, after 11 months of commercial operation, NAC has not paid a single dollar to two lending agencies, thereby tarnishing the image of NAC once again in the eyes of public. Entire tourism sector is totally flabbergasted and sad at the plight of national flag carrier just before the start of Visit Nepal Year 2020. Public at large and tourism industry is hoping for some drastic step from government to rescue NAC from nose-diving to the bottom.

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