German companies propose capital injection into NAC

German companies propose capital injection into NAC

German-based Lufthansa Consulting and German Aviation Capital have proposed making a 76 percent capital injection into Nepal Airlines Corporation (NAC) to become its management partner.

During a joint presentation made at the Finance Ministry last Friday, the two companies which are subsidiaries of the Lufthansa Group, had proposed overseeing three major departments, namely commercial, operation and engineering, besides holding the post of chief operating officer to help the struggling flag carrier enhance its operational efficiency.

“The capital injection could be in the form of cash, equity or assets,” said Suresh Acharya, joint secretary at the ministry, adding that the company’s investment would depend on the negotiations.

Initially, German Aviation Capital had proposed that if NAC signs an agreement with Lufthansa Consulting, it would help the airline finance four narrow-body and two wide-body jets.

Following last Friday’s presentation, the ministry asked NAC to submit its input on whether it needed a foreign management partner or not. The government has also asked for suggestions from the carrier regarding the type of policy intervention needed to improve its efficiency.

“The proposed induction of foreign management is based on NAC’s 10-year business plan submitted to the ministry.” Acharya said that the Financed Ministry was also positive about the German company’s proposal as NAC would not be able to survive under the current setting.

Lufthansa Consulting is an international aviation consultant for airlines and is an independent subsidiary of the Lufthansa Group. Similarly, German Aviation Capital is an aircraft leasing company based in Frankfurt.

The two companies had submitted their proposals to the Prime Minister’s Office last month. The corporation has received two separate proposals from the German companies. Lufthansa Consulting has proposed providing services in three phases.

In the first phase, it will conduct a gap analysis to identify the airline’s shortcomings. The gap analysis period will last a month and NAC will have to pay a fee of 295,000 euro for the service.

In the second phase, the company will take over NAC’s management. It will appoint its own people to top management posts like chief executive officer, chief financial officer and chief marketing officer.

The second phase will last a year, and it may be terminated if NAC thinks it is capable of handling things on its own.

However, the contract can be extended for two years. NAC will have to pay a fee amounting to 2 percent of its annual revenue. In the third phase, the German company will hand the management back to NAC.

In July 1970, the then Royal Nepal Airlines Corporation (RNAC) had invited experts from Air France under a programme to improve management, and they handled most of the managerial positions until 1973. In 1972, RNAC acquired its first jet, a Boeing 727, in cooperation with Air France.

The government has been considering privatising NAC or bringing in a strategic partner for the last decade. In 2007, it had initiated a plan to hand over NAC’s management to a foreign strategic partner so that it could reform and rescue the troubled carrier. However, the plan fell apart.

Source: ekantipur