KATHMANDU: The plight of the Nepal Airlines Corporation’s (NAC) Airbus A-320 engine, stranded at an Israeli firm for one and a half years, has caused significant consternation within Singha Durbar.

This escalating operational crisis, wherein the NAC’s A-320 has been utilizing a leased engine while its proprietary unit remains detained even post-repair at Israel Aerospace Industries (IAI), portends the imminent risk of the aircraft’s grounding. This peril necessitated the direct intervention of Prime Minister Sushila Karki. On November 13, she summoned the corporation’s senior executives to Singha Durbar and mandated that they effectuate payment of outstanding dues and expeditiously retrieve the engine.

Subsequent to the Prime Minister’s directive, the Board of Directors convened on November 14. Nonetheless, the assembly failed to reach a substantive resolution. Janak Raj Kalakheti, the Acting General Manager of the Corporation, articulated the complexity: “The issues of engine payment and compensation are not mutually exclusive and cannot be adjudicated simultaneously.

This situation necessitates a thorough examination of all prevailing rules, laws, procedures, and antecedent decisions.

“He further acknowledged, “We remain engaged in internal discussions; this process may require additional time.”

The maximum repair period for the engine held at IAI was 90 days. The lease for the replacement engine, which was brought in exchange, costs USD 2,000 per day, whether the plane flies or not. There are additional charges of USD 278 per flight hour and USD 239 per cycle (one take-off and one landing) for the leased engine.

Calculating the daily flight costs, the engine rent comes to between Rs 800,000 and Rs 1 million. At a daily rate of Rs 800,000, running the leased engine for 18 months amounts to Rs 430 million.

Excluding the 90-day repair period of its own engine, the corporation is liable to pay Rs 360 million for operating the leased engine for 15 months. If the corporation had been able to use its own engine during this period, Rs 790 million would have been saved.

The corporation is currently operating two Airbus A-320 aircraft. Both aircraft were purchased in the fiscal year 2014/2015. Of these, the Airbus A-320 Lumbini has been flying with a leased engine for two years. Of the four engines, one is currently leased. That engine belongs to the IAI, a company of Israel. The aircraft’s own engine has been undergoing a complete overhaul at IAI since April 26, 2024.

According to Spokesperson Anil Ghimire, the corporation had signed two agreements with IAI: one for repair and one for engine lease. Following the agreement, the corporation sent the engine for repair, and the Airbus A-320 returned to Nepal with the leased engine from IAI. Although the engine left for repair at IAI was completed five months ago, the corporation has not brought it back from Israel.

The flight cycle of the engine leased from IAI is nearing completion. The engine’s flight cycle expires on December 31, meaning it will have completed 44,795 hours. Even as the leased engine’s flight cycle is about to conclude, corporation officials are unwilling to retrieve their repaired engine, increasing the likelihood that the Airbus A-320 will be grounded.

Deficit mounts, dispute escalates

The engine lease incident has already cost the corporation Rs 1.5 billion in losses. While the payment for the leased engine and repair is one issue, the matter of claiming compensation has escalated the dispute between the Corporation and IAI. The unresolved matter, which began six months ago, has now reached the Nepal Civil Aviation Authority, the corporation’s Board of Directors, and Prime Minister Karki.

The matter is being discussed by the management and the Board of Directors. However, corporation officials are unable to resolve the dispute involving payment and compensation with IAI.

Officials are reluctant to even initiate the payment process for the leased engine and repair. Officials are hesitant to get involved in both payment processes for fear of falling under investigation by the Commission for the Investigation of Abuse of Authority (CIAA).

The IAI has already informed the corporation that it has terminated the contract prematurely, citing non-payment for both repair and lease.

IAI continues to press the corporation to return the leased engine. IAI has even sent a warning via email to stop the flights, claiming the corporation is still operating the engine despite the constant demand for its return.

“Yes, IAI is sending emails asking us not to use their engine,” says Corporation Spokesperson Ghimire. “A problem has emerged regarding the payment between the Corporation and IAI. Efforts are being made to resolve that issue.”

The IAI wrote a letter to the corporation on October 22, pressuring it to return the engine as soon as possible. Citing no response from the corporation, the company has increased pressure on the Civil Aviation Authority of Nepal (CAAN) to impose restrictions on the aircraft’s operation. IAI even sent an email directly to Pradeep Adhikari, the Director General of CAAN.

After the company sent the email, CAAN wrote a letter to the corporation on November 3 regarding the lease and repair of the Airbus A-320. The corporation replied to CAAN on November 11, stating that discussions about payment were ongoing with IAI.

While the payment problem persists on one side, another issue is imminent for the Airbus. Before December 31, 2025, the ‘Airworthiness Directive’ for the leased engine taken from the Israeli company must be implemented. This is a crucial engine test that must be carried out according to the instructions of the European Union Aviation Safety Agency (EASA).

The corporation is under pressure to send the aircraft to Israel for this as well. However, an official from the corporation’s safety department states that it is not possible to send the aircraft to Israel without resolving the payment dispute. If the payment problem is not solved, the corporation will not be allowed to operate the leased engine, and it will not be able to retrieve its own repaired engine.

The officials’ self-inflicted engine woe

The Nepal Airlines Corporation’s Airbus A-320 ‘Lumbini’ gradually sank into the engine crisis due to Yuvraj Adhikari, the then Executive Chairman of the Corporation. After Adhikari neglected the regular maintenance schedule, the Airbus A-320 engines began failing one after another. Subsequently, one engine after another needed to be repaired, and the risk of the aircraft being grounded escalated. Taking advantage of this situation, Adhikari adopted a strategy of leasing an engine to keep the plane flying. However, this became the seed of the current crisis.

During Adhikari’s tenure, all four engines of the Airbus A-320 Lumbini aircraft eventually reached the ‘overhaul’ stage. The corporation contracted with IAI to repair the first of these engines. By the time that engine repair was completed, another engine had failed.

To overhaul this engine, the corporation contracted with the German company Lufthansa Technik. The corporation operated Lufthansa’s engine on lease for some time.

As the contract with Lufthansa concluded, the other two Airbus engines failed sequentially. The corporation had no preparation to deal with such a situation. When both engines had to be sent for repair, the corporation hastily initiated the tender process.

The corporation signed an agreement with IAI on August 21, 2023. The contract was valid until August 30, 2026. Following the agreement, the problematic Airbus engine was taken to IAI for repair on September 17, 2023. The Airbus returned to Kathmandu on September 28, 2023, with a leased engine attached.

Less than two months after the leased engine was attached, another engine developed a problem. During technical inspection on November 26, 2023, another engine required repair. Consequently, the aircraft was grounded in Kathmandu until January 10, 2024.

After this, the aircraft was sent to Israel on January 12, 2024. IAI was unable to provide the leased engine as per the agreement on time. Without receiving the engine, the aircraft was grounded in Israel for a long period of 149 days. After almost five months, the leased engine was attached, and the aircraft returned to Kathmandu on April 26, 2024. Since then, the Airbus A-320 has been operating with the leased engine from IAI.

“IAI has stated that the engine repair was delayed due to a lack of spare parts. The corporation repeatedly corresponded about the delay in engine repair,” says Spokesperson Ghimire. Since the engine was not ready on time, the corporation has not paid IAI for either the repair or the lease. The outstanding payment for the repair and lease is estimated to be approximately Rs 1.5 billion.”

Initially, the engine repair cost was estimated at Rs 699.2 million. That cost increased by Rs 297.1 million. Adding the Rs 440 million for the leased engine and the repair fees, the amount the Corporation owes IAI totals Rs 1.436 billion. Furthermore, the corporation still owes IAI Rs 7 million, which was the amount above the predetermined cost for the first engine repair.

The corporation has not paid IAI the Rs 7 million for the first engine repair, nor has it paid the lease and repair fee for the last leased engine.

Because of this incomplete payment, the Airbus A-320 is once again at risk of being grounded. The delay in retrieving the aircraft’s own engine is due to the non-payment of the repair and lease amount for the leased engine. The blame for this also falls on Adhikari.

The IAI took a long time to repair the third engine, citing a shortage of parts. Meanwhile, the corporation’s leadership claimed compensation from IAI. The then Executive Chairman Adhikari claimed compensation from IAI for more than double the amount of the repair and lease.

IAI was startled by the list of compensation claims. Following this, it began pressuring the corporation to pay both the repair and lease amounts. It appears that IAI increased the pressure for payment just before Adhikari retired on October 24. By claiming compensation first, the corporation did not pay the lease and repair amount.

After this, IAI sent a unilateral decision to cancel the contract on October 22, even though the contract period had not ended.

The Corporation claimed USD 2.3 million (approximately Rs 3.260 billion, at the current exchange rate) in compensation in two installments: on April 4, 2025, and June 19, 2025. If the payment had been made in between, this situation might not have occurred. The current state is a result of not paying the lease and repair fees and keeping its own engine stuck there.

IAI has warned that it will not release the engine without payment for both the lease contract amount and the repair amount. IAI maintains its position of not paying the compensation because the claims were not stipulated in the contract agreement.

However, IAI has put forward a condition that it is willing to waive the lease fee for the period the aircraft was grounded in Kathmandu and the 149 days it was grounded after reaching Israel and offer Rs 67.2 million as compensation.

When the CIAA entered

The agreement with IAI is now under controversy. Following a complaint of financial embezzlement, the Commission for the Investigation of Abuse of Authority (CIAA) has seized all documents.

With the CIAA investigation underway, no corporation officials are willing to release funds and bring the engine back. Spokesperson Ghimire says, “Discussions are ongoing. IAI is prepared to pay a reasonable amount for the delay, but it believes the amount claimed as compensation is unreasonable.”

Officials are currently scared that the CIAA might investigate if they pay the repair and lease amounts without the compensation claimed by the previous management being paid.

However, if someone at the corporation does not untangle this knot, the Airbus A-320 aircraft is likely to be grounded.

According to the claim of the then Executive Chairman Yuvraj Adhikari, IAI is prepared to pay compensation for the 120 days of delay. Adhikari says, “The compensation was claimed by adding the loss incurred during this period and the corporation’s operating expenses. There might be negotiation on the compensation, and the current management might be discussing it.”

A worsening spiral of loss

The corporation has earned a reputation as an institution that incurs losses rather than profits when operating aircraft. It is incurring losses on both domestic and international flights. In the fiscal year 2017/2018, the corporation was at a loss of Rs 1.300 billion.

In the fiscal year 2018/2019, when the wide-body aircraft were brought in, the loss more than doubled to Rs 3.830 billion. Due to not being allowed to fly during the Covid pandemic in the fiscal year 2019/2020, the loss increased to Rs 4.580 billion.

In the year 2020/2021, when Adhikari’s tenure as executive chief began, the corporation suffered a loss of Rs 4,850. The loss was Rs 1.910 billion in the fiscal year 2021/2022.

The Corporation, which incurred a loss of Rs 660 million in the fiscal year 2022/2023, suffered a loss of Rs 1.500 billion in the fiscal year 2023/2024. Although the report for the fiscal year 2024/2025 has not yet arrived, the corporation’s loss is estimated to exceed Rs 1 billion. The leased engine is the main contributor to this loss.

The collaboration with IAI has further increased the corporation’s losses. The Ministry of Culture, Tourism, and Civil Aviation had even formed a committee to investigate the matter.

The committee, formed under the leadership of former CAAN Director General Tri Ratna Manandhar on July 2, 2024, submitted its report on July 16, 2024. However, the problem remains unchanged. Manandhar says, “We submitted the report; it was not implemented.”

The report mentions that the unnecessary delay in engine repair in Israel and the company’s failure to provide the leased engine on time as per the contract caused a loss of Rs 1.25 billion. The same report also states that despite incurring losses, the corporation did not work to achieve results.

The report notes, ‘Overall, the Executive Chief and the concerned departmental heads did not appear serious and responsible for the situation where only procedural steps were completed but no concrete results were achieved.’

The agreement with IAI is not without controversy. The report concluded that the procedure was not followed according to the Financial Regulation, 2009, when the agreement with IAI was made. The tender was not called according to the Public Procurement Act, 2007.

Since only some of the basic conditions required to be fulfilled were disclosed in the tender notice, the process was contrary to the principles of open competition and transparency.

The investigation committee questioned IAI’s capacity. The committee suggested not collaborating with the company of Israel due to its lack of reliability, as it was unable to provide the engine according to the condition.

However, the corporation did not break the agreement with that company. Ghimire says, “Since the engine was being repaired by that same company, there was no situation to break the agreement and take it elsewhere under new circumstances.”

The corporation is demonstrably failing to anticipate potential operational impediments stemming from the protracted service life of its aircraft and has neglected to formulate contingency blueprints concerning crucial components like the engines.

Despite 10 years of operating two Airbus A-320 aircraft, the corporation has failed to procure a requisite spare engine. Furthermore, the corporation remains entirely without a long-term strategic mandate to mitigate or manage future engine malfunctions.