The case for Why Nepal needs a Strong National Carrier

 The first flight into Kathmandu’s Gauchar Airport, a Douglas DC-3 ‘Dakota’ landed in 1949 only thirty-five years after the first EVER commercial flight took place in the United States of America.

And that first flight, whether born of the romance of travel or bearing VIPs projecting their importance, fired up the Nepali imagination. In a country of jungles, rivers, hills, mountains, and foot trails that formed the ‘highway system’, and even now described as inaccessible, the aero plane offered up undreamt-of possibilities. Air travel would open Nepal to the outside world in the late fifties and the far-flung Nepali cities, – often several days’ travel-time away – would thrum to the sound of the ‘Dakotas’. At the forefront of this amazing transformation would be Royal Nepal Airlines or RA. –the sometimes venerated, but often vilified, National Carrier of Nepal.

Development of Short Take Off and Landing (STOL) planes like the Pilatus PC-6 ‘Porter’ and the De Havilland DHC-6 ‘Twin Otter’ would help RA open remote mountain areas of Nepal. The Hawker Sidley HS-748 ‘Avro’ would supplant the ‘Dakotas’ on trunk-routes and make flying comfortable and a brand-new Fokker F-27 ‘Friendship’ would connect cities like New Delhi. These were romantic and exciting times. A time when villagers in Nepal had not yet seen an automobile but were aware of the flying ship or ‘hawai jahaj’. Lost amidst the romance was an often-overlooked boon of air transport; the quick delivery of humanitarian supplies to places struck by landslides, floods, earthquakes, and disease, effectively extending the reach of the otherwise, absentee government in Kathmandu.

Coming of the jet age

Meanwhile, global aviation was changing and growing in leaps and bounds. The jet age had arrived with the Douglas DC-8 and Boeing-707 and in 1968 Boeing’s 747, the ‘Queen of the Skies’, would take flight and dominate the firmament for the next 50 years in its various iterations, forever changing the face of travel. RA would bring the jet age to Nepal with the induction of a Boeing-727 into its fleet in 1972. A planned second tri-jet would not arrive until 1979 – in the form of an older airframe.

A fair bit of soul-searching probably went into the decision to modernize and re-build Royal Nepal Airlines’ fleet in the mid-eighties by ordering up the then newly launched, ultra-modern Boeing-757’s including a Combi version, which was the only Combi ever built by Boeing of the bestselling aero plane type! Rejuvenation of the National Carrier was in full swing. In 1988-89 RA reported a revenue of more than USD 54 million and more than a full third of that or upward of USD 17 million as operating profits. However, the business plan that had called for inducting three of the planes into the RA fleet never materialized, forever hobbling the National Carrier, and leading it down the path of near implosion.

Scandals galore

Political changes sweeping through Nepal in the early and mid- nineties interfered with management at Royal Nepal Airlines and stymied fleet expansion both internationally and domestically. In the 1990-91 period RA carried upwards of 645,000 passengers, with more than half that number being domestic flyers, and had a revenue of more than USD 110 million when Nepal’s Gross Domestic Product stood at about USD 3.92 billion.

1992 is a milestone year in Nepali Aviation. The domestic market was liberalized and soon the private sector, sensing the Government of Nepal’s reluctance to responsibly manage its ownership of the ‘jewel,’ as it were, of the all the Public Sector Undertakings began to make quick in-roads into the domestic market to the advantage of the flying public. By the mid-nineties Royal Nepal’s domestic services on its trunk routes were ‘iffy’ at best. The usual question at the airport was not ‘when’ the plane would leave but ‘if’ it would depart at all!

Then came the period of scandals! Dhamija, Lauda and Chase spring to mind amidst other lesser but nonetheless, equally sinister ones. Behind each of these lurked the hands of a Nepali political party or its bosses. RA had to bear such great losses that they continue to affect its bottom line to this day!

Geo-political Realities: Trapped between the Dragon and the Elephant

In an increasingly interconnected world Nepal needs to face up to its geo-political realities. Sandwiched between two large and often bickering neighbors, any mathematics we do in this regard must consider the ‘Dragon’ as well as the ‘Elephant’ in the neighborhood. Of the two, in Nepal’s case, it has been the ‘Elephant’ or India that has historically reverted to overt pressure in the past. Recent memory brings up four instances when the southern neighbor has imposed a blockade on Nepal. During the most recent ones, an already marginalized RA, with a bare minimum of fuss stepped up to bat. In 1989 the venerable B-727’s would ferry fuel from Dhaka and Singapore to Kathmandu and in 2015 the also by then venerable, B-757’s would ferry aviation fuel from Calcutta. More recently, with the entire world locked-down due to the SARS2 COVID-19 Pandemic it would be RA again that would fly north to bring batch after batch of vaccines for the population.

Just these cases ought to be enough argument to make a conscious decision in favor of a practical air-lift capability. However, there is more. Three years on from the onset of the Pandemic, the northern border stays closed. No overt blockade or pressure but, just an ascendant ‘Dragon’ China, telling the neighborhood it can do what it wants when it wants. Treaties, entreaties of friendships and plain old neighborliness be damned. In the meantime, Chinese airlines continue to ferry their VIPs and goods across the Himalaya while we watch silently and mouth, ‘Thank you!’

Trade and Commerce

The only way to change geopolitical realties is by changing the narrative. While we are in no position to change the pecking order in the neighborhood we can try and change the narrative or in this case how we conduct our trade and transit policies or their mix and the avenues within our control.

Nepal’s national strategy, if there is one, and/or if there is not and/or if one is ever dreamt up, must necessarily address the present trade imbalances. To do that it must address the conveyance of goods, services, and peoples to and from the far-flung corners of the world to address our unhealthy interdependence on our neighbors. To do this accessibility is key. While the road network and the much-hyped rail systems of the future will play their oversizedroles, air transport will be our go-to mode in the transportation of high-value exports, passengers and in cases of acute need, other supplies. We are severely lacking in this respect. The National Carrier boasts all of four planes in its international fleet. This hardly qualifies as keeping a belly-hold cargo capacity in place to address our national interests. To put things into perspective, in 2018 alone the daily flow of cargo at the Kathmandu airport stood at 56 tons per day according to the Civil Aviation Authority of Nepal (https://caanepal.gov.np/storage/app/uploads/public/5cf/8c9/3b5/5cf8c93b5937a929054884.pdf ). To capture even 50% of that volume RA would need to manage twenty-eight tons per day every day of the year. A very tall ask by any standard, given the current fleet size and composition.

Making business sense

What about passenger flows? Wouldn’t any National Carrier primarily carry passengers, including tourists? On the face of it yes and let us address that. It is also easier to quantify as more data exists in this aspect. In 2019, the last normal year, 4,138,764 passengers travelled by air into and out of Nepal. Of those 2.24 million flew out 1.89 million flew in. Of which, RA by now the largest again, flew out 370,607 persons and flew in 356,228 passengers, commanding a 16% market share on the outbound and 18% market share on the inbound segments.

(https://www.tourism.gov.np/files/NOTICE%20MANAGER_FILES/Nepal_%20tourism_statics_2019.pdf ).

However, RA cannot fly into Europe due to EASA’s ban on Nepali carriers from European airspace and thus 16% or 18% of seat market share does not translate to the same amount of share in revenues. Assigning each ticket an approximate value of USD 500 we can assume that passengers spent roughly USD 4 billion flying into and out of Nepal of which RA’s earnings should have been roughly USD 700 million or so. The actual figure was far lower. That would have been a royal sum, still. But nowhere near what could have been if, say, Europe was not off-limits to RA and its market share was 60% or USD 2.48 billion. Now throw air cargo into that mix and the sums become truly eye-watering in the Nepali context and even more so, when looked at through the present prism of depleted foreign exchange earnings.

Past revenues that could have been are great to make comparisons. Now consider that the Nepali Cabinet has endorsed a Tourism Ministry plan to declare 2023-2032 the “Visit Nepal Decade”

(https://biznessnews.com/posts/9525) and the numbers associated with that are truly amazing. 5 million tourists, spending an average of 12 days in-country, taking the current length of stay as a benchmark, at a rate of USD 125 per day on average gives us a tourism revenue target of USD7.5 billion for 2032. In 2019, 83 per cent of arrivals into Nepal were by air. Of the 5 million tourists targeted for 2032 we can safely assume 4 million or 80% will be by air and say another three million Nepalis will also travel overseas that year. If Nepal Airlines were to be built-up to target 60% of that market it would need to carry 4.2 million passengers by then and could potentially earn revenues of USD 2.1 billion or more doing so! If only it were to be equipped with the planes to do so.

Soft power

A successful National Carrier can project soft power for a country into the far corners of the world. Especially given our comparatively lower labor costs. Were we to put our minds to building a world class airline that would be the first choice of travelers wherever that airline flew, the soft power benefits would be amazing. Think Singapore Airlines, Ethiopian Airlines, early Thai Airways, and the likes. Even the sixty’s Maharaja of Air India that the TATAs are now trying to whip into shape. Successful airlines have projected a country’s standing to a position way above its actual punching weight on the world stage. National carriers have successfully promoted tourism, cuisines, service levels and a nation’s general attitude to the outside world.

Choices, choices

Early on I mentioned that Nepal Airlines had often been vilified even as it has striven to prove its worth repeatedly. So, what to do with the National Carrier that we have? I would like to think that a sufficiently convincing case has presented here of the need for a strong national carrier considering the geo-political, commercial, and soft power landscapes by now. However, the ultimate responsibility for the Carrier rests with its owner. In this case, the Government of Nepal. Alone.

Voices have arisen about how the airline should be shut down, privatized, turned into a Public Limited Company, or even sold off outright. Overall, one of those options may yet have to be exercised in the future. In the short and medium term, however, shutting down the airline does not serve any purpose. Privatization, while tempting does need to take into consideration that the Nepali private sector has yet to prove the ability to rustle up the kind of capital needed to run an effective regional carrier, let alone one with larger international aspirations. Going public with a heavily indebted entity might not offer the best choice for the owners and selling the airline would similarly draw scant attention as whoever buys it also needs to address its liabilities, including past debt burdens.

So, the seemingly best option I might suggest would be to arrive at a broad understanding across party lines -after all it is they who almost ‘killed the goose that laid the golden egg’ to, for the short- and medium-term, rejuvenate Nepal Airlines with an agreed to framework for growth, guided by a Business Plan that addresses commercial goals and also keeps in mind our geo-political frailties. At an agreed point in the Airlines’ rejuvenation journey, with it sufficiently recovered and in sound financial health, a move can be made to the company model where the GON can keep a minority stake or even just a Golden Vote to be used only in cases of dire national emergencies. The rest can be floated on the stock exchange and with the GON exiting the company for a profit and turning it over to the taxpayer-shareholder owners who would have indirectly funded the airline’s recovery, anyway. The Government of Nepal’s Golden Vote with or without a minority stake would not blunt the strategic ‘tip of the spear'.