The government has formally invited Lufthansa Consulting and German Aviation Capital to Kathmandu to negotiate a deal following their proposal to provide consultancy and management services to improve the performance of Nepal Airlines Corporation (NAC) and enhance its operational efficiency.
A high-ranking Tourism Ministry official said that they had written to the two companies three days ago.
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 national flag carrier has also kept an option open for their proposal stating that it was a positive offer.
The NAC board had asked the government to be clear about the modality to be adopted when inducting foreign partners as it was confused whether the proposal was for a strategic partnership or a management consultancy deal.
“There will also be further discussions of the proposal and the interested companies will be asked to make a detailed presentation of their turnaround plan for NAC,” said the official. “The project is at a preliminary phase. The government’s plan to involve them in NAC’s management will be finalized after further discussions.”
“If the government is satisfied with their scheme, the proposal will be presented to the Cabinet,” said the official. The way things stand presently, the future of the national flag carrier is bleak, he added.
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 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 euros for the service.
In the second phase, the company will take over NAC’s management. It will appoint its own people to the 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 over the management to NAC.
Meanwhile, German Aviation has proposed that if NAC signs an agreement with Lufthansa Consulting, it will help the airline lease four narrow-body jets within 35 days.
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.
Presently, NAC holds a meagre 6 percent market share on international routes. It serves four international destinations. NAC’s share in the domestic market stands at an even more miserable 1.33 percent. It flew 20,591 passengers in 2013, down 44 percent from the previous year.