KATHMANDU: The Chinese aircraft bought by Nepal Airlines Corporation (NAC) have been basking in the sun at the Tribhuvan International Airport parking lot for five years. With no one willing to take these six aircraft through auction, sale, or even lease, the Corporation is crushed under the heavy burden of insurance and parking fees.

Although one of the six Chinese-made aircraft, a Y-12E, was grounded after crashing during landing at Nepalgunj Airport on March 29, 2022, the remaining five were still flying. These aircraft failed to turn a profit over seven years of operation. Instead, concluding that the annual loss amounted to Rs 500 million, NAC decided on June 30, 2020 that it could not operate the Chinese planes.

A month later, on August 1, 2020, NAC grounded all the aircraft. This decision was made by the then-Executive Chairman of NAC, Sushil Ghimire, who had been involved in the process of purchasing the Chinese aircraft while serving as Tourism Secretary.

NAC had purchased the aircraft that met with the accident and has received the insurance payout for it. The Corporation is forced to pay regular insurance and parking fees for the remaining five aircraft, which have been grounded for five years. The cost incurred by the Corporation during the time the planes have been parked is now equivalent to the loan amount it took to purchase them.

According to NAC Spokesperson Subash Dangi, the Corporation incurred a loss of two billion rupees during the seven years the aircraft were operated. During the five years they were grounded, NAC has paid one billion rupees in insurance and parking fees at a rate of Rs 200 million per year.

“NAC started incurring losses right from the time the Chinese aircraft were purchased, and there is still a loss while they are parked,” Dangi says, “No one accepted the Chinese aircraft through any of the three options: auction, sale, or lease.”

NAC brought two MA-60s and four Y-12Es from China between April 27, 2014 and February 14, 2018. Of these, two aircraft—one MA-60 and one Y-12E—were provided by China as a grant, while the other four aircraft were purchased by the Corporation on a subsidized loan.

The process to purchase the Chinese aircraft began after the Cabinet meeting on November 26, 2012, approved a G2G (Government-to-Government) agreement between the Nepal and Chinese governments. A loan of Rs 3.14 billion was taken from China to purchase the aircraft.

The G2G agreement stipulated that Exim Bank would provide a loan of 228 million Yuan (approximately Rs 3.74 billion at the time) to Nepal. According to the agreement, which set the interest rate at 1.5 percent per annum with a 20-year repayment period, Nepal would not have to pay the principal or interest for the first five years.

Following this, NAC purchased the aircraft after signing an agreement with AVIC International, which is owned by the Chinese government. Two companies under AVIC, Xian Aircraft Industrial Corporation, manufactured the MA-60, and Harbin Aircraft Industrial Group manufactured the Y-12E aircraft.

Including this debt, Nepal Airlines Corporation’s long-term debt currently stands at Rs 52 billion. At a time when the Corporation is unable to repay this debt, the liability of the grounded aircraft is continuously adding to the burden.

What happened under whose watch?

The journey of NAC’s Chinese aircraft purchase involves not just technical or financial processes but also a decade-long saga of political and administrative involvement. Be it the MA-60 that came as a grant or the Y-12E that came on loan, all have only resulted in losses. Yet, the ministers and secretaries who made decisions at each stage have never had to take responsibility.

The initial decision, made in a meeting on August 5, 2011 under the then-Executive Chairman Manrup Shahi, was that ‘aircraft must be purchased for remote areas.’ Subsequently, successive ministers, secretaries, technical teams, and NAC officials moved the paperwork forward and the aircraft were brought.

The meeting’s decision stated that there was a need for five ‘Short Take-off and Landing’ (STOL) aircraft with a capacity of 17 to 19 seats for flights to remote areas within two to three years. It was decided to request the government to arrange the aircraft as grants from donor countries.

The very next day, August 6, 2011, Shahi wrote a letter to the Ministry of Culture, Tourism, and Civil Aviation. Khadga Bahadur Bishwakarma was the Minister, and Ganesh Raj Joshi was the Secretary.

Nepal Airlines Corporation’s Chinese aircraft basking in the sun. Photo: Bikram Rai/Nepal News

The Ministry of Tourism forwarded NAC’s proposal on August 11, 2011. On August 12, 2011, Section Officer Komal Prasad Adhikari wrote a letter to the Ministry of Finance, stating that it was decided to procure aircraft from among the DHC 6/400 (Viking Company, Canada), EMB-110 (Embraer, Brazil), Y-12 (Harbin Aircraft Manufacture Company, China), and L-410 (Czech Republic).

NAC did not consider the Canadian, Brazilian, or Czech Republic aircraft. It sent its technical team to China on November 16, 2011. The team stayed for six days and returned to Nepal. On January 23, 2012, another Board of Directors meeting was held under the chairmanship of NAC Chairman Shahi. The meeting reviewed the report of the team that returned from China and sent it to the Ministry of Tourism.

On February 14, 2012, another meeting chaired by Shahi requested the Ministry to proceed with the process, as an agreement would be reached between the Governments of Nepal and China, financial arrangements would be made, and the aircraft would be received from the Chinese company.

On October 11, 2012, a meeting chaired by the Chairman of the NAC Board of Directors (Tourism Secretary) Yagya Prasad Gautam decided to discuss two separate proposals to purchase the MA-60 from AVIC International China and the Y-12E from Harbin. On December 9, 2012, the NAC Board meeting, also chaired by Gautam, decided to write to the Ministry of Tourism for conceptual agreement and instructed the management to submit the proposal.

On December 10, 2012, the Board of Directors sent a letter to the Ministry of Tourism. The letter mentioned that the loan interest rate through Exim Bank would be 1.5 percent, the principal and interest repayment would begin after five years, and the total repayment period would be 30 years. At that time, the Tourism Ministers were Lokendra Bista Magar and Posta Bahadur Bogati, successively.

On December 10, 2012, Madan Kharel was appointed General Manager of Nepal Airlines Corporation. The agreement with Exim Bank took place during his tenure. On December 2, 2013, it was finalized that the aircraft would be brought from China as per the agreement.

In Ghimire’s time, the meeting on December 2, 2013, advanced the process of bringing the Chinese aircraft to Nepal. The process of signing agreements with the aircraft manufacturing company and registration with the Civil Aviation Authority of Nepal was initiated. Ram Kumar Shrestha was the Tourism Minister at that time.

On the same day, the meeting chaired by Ghimire decided that a three-member team led by the General Manager of NAC would go to China to participate in a meeting with high-ranking officials of the aircraft company regarding pre-transfer preparations.

On November 29, 2013, a ‘Letter of Exchange’ (LOE) was made concerning the purchase of MA-60 and Y-12E aircraft. On December 11, 2013, the meeting chaired by Ghimire decided to send a team including the General Manager, Director, and Engineering Department to China.

In a meeting chaired by Ghimire on March 24, 2014, it was decided that all insurance, including aviation, would be covered by the Rastriya Beema Sansthan (National Insurance Company). On the same day, it was decided to write a letter to the Ministry of Finance regarding the exemption of customs duty for the new aircraft.

Following this, one MA-60 aircraft, which was a grant, arrived in Nepal on April 27, 2014. Another Y-12E aircraft arrived on June 30, 2014. The Minister was Bhim Acharya and the Secretary was Ghimire. The MA-60 was grounded for 62 days after its arrival.

The third aircraft, an MA-60, arrived on January 27, 2017. The problem was the same. After problems were seen in the first and second aircraft, a committee was formed in 2014 under the leadership of General Manager Kharel. It reported on the problems and losses incurred while operating the Chinese aircraft. But the Secretary and Minister did not heed it.

Two Y-12Es arrived on March 3, 2017. At that time, the Ministers were Deepak Chandra Amatya, Kripasur Sherpa, Ananda Pokharel, and Dilnath Giri, successively. The Secretaries were Suresh Man Shrestha, Dinesh Thapaliya, Prem Kumar Rai, Shankar Prasad Adhikari, and Maheshwar Neupane.

The last Y-12E arrived on February 14, 2018. When that aircraft arrived, Jitendra Dev was the Minister, and Neupane was the Secretary.

However, reports that the Chinese aircraft were continuously incurring losses began reaching the Ministry from NAC. Ministers after Dev, namely Rabindra Adhikari and Yogesh Bhattarai, and Secretaries Krishna Prasad Devkota, Mohan Krishna Sapkota, and Kedar Bahadur Adhikari, did not show interest.

Finally, stating that they could not bear the loss from operating the Chinese aircraft, NAC grounded the aircraft on July 30, 2020. At this time, Bhanubhakta Dhakal was the Minister, and Adhikari was the Secretary.

 Those who facilitated the purchase of Chinese aircrafts

At the very start of the Chinese aircraft purchase process, NAC sent a five-member technical team to China. The team was tasked with reporting whether the Chinese aircraft were suitable for Nepal’s geographical and environmental conditions and whether they could be operated in Nepal.

The team included NAC’s then-Deputy Directors Ganesh Thakur, Kiran Panta, Santosh Kumar Khati, Pilot and Instructor Bijay Lama, and Captain Shrawan Rijal. Thakur was the head of the team. The team, which went to China on November 16, 2011, began its study of the Chinese aircraft on November 17, 2011.

The team studied the Chinese aircraft from November 18 to 20, 2011 and returned to Kathmandu on November 21, 2011. After returning to Kathmandu, the team submitted its report on November 25, 2011.

The report stated that the MA-60 was as excellent as the European ATR aircraft operating in Nepal, and the Y-12E was better than the Canadian Twin Otter and German Dornier aircraft. The aircraft were brought based on this technical report, but the result was the exact opposite.

What the technical report said

The report mentioned that the engine of the MA-60 aircraft was more powerful than that of the ATR-42-500 aircraft. It was reported to be equivalent to the engine used in the ATR-72 operated by airlines like Buddha and Yeti.

The report provided by the technical team mentioned that the operating costs of the MA-60 and ATR-42 were almost similar. Accordingly, the operating cost of the MA-60 was $1,745 per hour, and the operating cost of the ATR-42 was $1,702. It was even claimed that the operating cost per seat for the MA-60 was lower.

According to the report, the operating cost per seat was $31.16 for the MA-60 and $35.46 for the ATR-42. The technical report recommended that considering the successful commercial flights of the MA-60 in various countries, its operational type, market condition, cost, and passenger comfort, the aircraft seemed suitable for Nepal Airlines Corporation to operate on trunk routes.

According to the report, the MA-60 had a life of 25 years, 60,000 flight hours, and 50,000 flight cycles, and could be operated in Bhadrapur, Biratnagar, Janakpur, Simara, Bharatpur, Pokhara, Bhairahawa, Nepalgunj, Dhangadhi, Surkhet, and mountainous regions.

In addition, the team reported that the aircraft could even be used for cross-border flights to neighboring countries like India, Bangladesh, and Bhutan.

The technical team wrote that the engine installed in the Y-12E was a high-capacity ‘hot and high’ power unit and that the aircraft could fly with more load than the DHC-6/600 aircraft in areas like Manang.

According to the report, the operating cost per seat was $31.16 for the MA-60 and $35.46 for the ATR-42.

It was claimed that the Y-12E could fly on all routes, similar to the Twin Turboprop DO-228 aircraft, and was also capable of flying in Manang, Dolpa, Bhojpur, Rumjatar, Kangel Danda, Thamkharka, Rukum, and Taplejung, where the DO-228 could not fly.

The report mentioned that this aircraft had lower fuel consumption than the DHC-6/600 and DO-228, thus reducing costs, and had the capacity to fly faster than the DHC-6/600, indicating lower operating costs.

It was mentioned that the maximum landing weight of the aircraft was only 11,900 pounds, so the load could be limited in areas with flights shorter than 25 minutes.

The Y-12E aircraft was operated by the private airline Nepal Airways in 1991. At that time, many problems were seen in the landing gear, nose wheel, wings, engine, and fuselage of the aircraft. However, the technical team recommended that since those weaknesses had been corrected in the Y-12E and Nepal Airlines’ Twin-Otter aircraft were very old, the Y-12E could be a good option for replacement.

Relying on this report, the result was the opposite.

Disaster from the start

According to the G2G agreement, China sent the first aircraft, an MA-60, on April 27, 2014. As soon as the aircraft arrived in Kathmandu, it was grounded for 62 days.

This was because the training pilots did not arrive with the aircraft. The training pilots only arrived in Nepal on June 6, 2014. The aircraft only began operations on June 25, 2014, after the Civil Aviation Authority granted permission to the training pilots on June 16, 2014.

Five days after the aircraft went into operation, on June 30, 2014, it collided with a bird during landing at Biratnagar Airport. A propeller needed to be replaced. But as the propeller did not arrive from China, the aircraft was grounded for 13 days.

Two days after resuming operations, on July 16, 2014, there was a radar problem. Although the agreement stipulated that spare parts should arrive within 24 to 48 hours, China sent them seven days late.

Studies revealed that the operating cost of the aircraft, which the technical team had reported as highly suitable, was excessively expensive.

Similarly, an anti-skid (brake-related problem) occurred on August 15, 2014. But the parts did not arrive. Such frequent groundings raised questions about the reliability of the service and, on the other hand, began causing financial loss.

Seven months after the first aircraft arrived, another grant-provided Y-12E aircraft arrived in Nepal on November 3, 2014; the problem was the same.

Subsequently, the then-General Manager Madan Kharel conducted a study on the problems of the Chinese aircraft and reported to the Ministry of Tourism. The report mentioned that although the Authority’s rule required new pilots to fly for at least 50 hours with the instructor pilot to operate a new type of aircraft, the instructors who came for the MA-60 aircraft started returning within 15 days.

A total of six pilots came from China. Only two of these pilots flew for 50 hours; the others returned midway. These two pilots could fly a maximum of 100 hours per month. After this was completed, the Chinese side did not send new pilots. The aircraft was grounded again on October 11, 2014.

The third aircraft, an MA-60, arrived on January 27, 2017. Two Y-12Es arrived on March 3, 2017. The last aircraft, a Y-12E, arrived on February 14, 2018.

After purchasing an aircraft, the manufacturer is responsible for its operation and technical aspects. NAC Information Officer Manoj Kumar Sah says, “AVIC did not look after both aspects. We wrote to the Ministry many times, but there was no solution. Now, even when we ask them to take it back themselves, they don’t care.”

More expensive than Boeing-757

Studies revealed that the operating cost of the aircraft, which the technical team had reported as highly suitable, was excessively expensive. According to the report submitted by the then-General Manager Kharel, the insurance premium for the MA-60 and Y-12E was found to be very high.

The MA-60 was expensive by $936,020 per aircraft. The Y-12E insurance cost $707,000. In contrast, the annual insurance for NAC’s two operating Boeing-757s was $1,077,733 per aircraft. The annual insurance for the four Twin Otters cost $455,325.

The spare parts for the MA-60 were also expensive. The price of a brake unit for the Boeing-757 was $17,657. For the MA-60, it cost $56,050.

Problems were evident right from the process of receiving the grant-provided Y-12E aircraft from the Chinese government. According to General Manager Kharel’s report, the grant Y-12E aircraft should have arrived by the end of June 2014. But since the first aircraft could not be operated, the second one was delayed. When it did arrive, the training pilots did not arrive on time.

The report stated that the Y-12E aircraft faced difficulties in operating in Nepal’s remote areas. The airfields in Nepal’s remote areas have an uphill/downhill slope of two to ten percent. However, the Y-12’s uphill/downhill limit was a standard not exceeding two percent.

The Y-12 aircraft did land at Lukla Airport, which has the steepest slope. However, the Chinese side did not provide a chart showing which airports could be operated after inspection. Even when requested by NAC, the aircraft manufacturer could not provide the standard.

The training fee for one Y-12E pilot was demanded at $85,000, and for one MA-60 pilot, it was $90,090.

For any aircraft to remain in operation, the training of new pilots and engineers must be regular. The Chinese side demanded an unusually high fee for this training as well.

Accordingly, the training fee for one Y-12E pilot was demanded at $85,000, and for one MA-60 pilot, it was $90,090. The report noted that since training needed to be conducted every six months to prevent the expiration of pilots’ licenses, the fee for that was also high. The necessity to pay such fees negatively affected the financial aspects of the aircraft.

Subsequent study task forces after Kharel also pointed out the excessive fuel consumption of the Chinese aircraft. “Did the Nepali technical team that went to inspect these aircraft fail to estimate the fuel consumption, or were they deliberately negligent? It is clearly evident that those aircraft are unsuitable for Nepal’s geographical location and environment,” says former Governor Dipendra Bahadur Kshetri, coordinator of the Committee for Structural and Managerial Study and Recommendation of Nepal Airlines Corporation, formed by the Ministry of Tourism on April 7, 2023. According to him, the government formed eight such committees for the improvement of NAC, but none of them proved effective.

According to the Kshetri Committee report, an ATR with 70 seats in Nepal consumes 2.53 liters of fuel per seat when flying 100 kilometers. However, the MA-60 aircraft, with 56 seats, consumes 4.72 liters of fuel per passenger for the same distance.

Payload problem

According to Kshetri, the Nepali technical team did not correctly analyze the payload. Payload is the passenger carrying capacity. The MA-60 aircraft with 56 seats had a carrying capacity of 49 to 54 passengers when taking off from Kathmandu airport. However, when taking off from Biratnagar, Bhairahawa, Dhangadhi, and Nepalgunj airports, the carrying capacity was only 34 to 46 passengers.

Similarly, the payload capacity of the Y-12E was 200 kg less than specified. The reduction in revenue due to the payload capacity naturally led to a loss for NAC.

Another reason for the Chinese aircraft being grounded is that NAC did not secure a guarantee from the Chinese side regarding the price and availability of spare parts.

The presence of both these aircraft in the international market is weak. Since no one other than the originating company could supply their parts, they could not be made available on time.

Another committee

After the technical committee led by Ganesh Thakur recommended that the MA-60 and Y-12E aircraft were highly suitable, another committee was formed to study the matter. Former Director General of the Civil Aviation Authority of Nepal, Triratna Manandhar, says that the government rejected the report provided by the committee he led, which recommended purchasing the Chinese aircraft only after a test flight.

“Posta Bahadur Bogati was the Minister. The committee I led clearly stated how many Chinese aircraft were purchased, where they were malfunctioning, how and where they were flying, and advised to bring them to Nepal only after a test flight,” he says, “I don’t know where our report went.”

Lokendra Bista Magar, one of the ministers involved at the time of purchase, says that although the process of buying the Chinese aircraft was underway, he was not involved when they were brought. “Regardless of whose tenure they were brought in, if there is a loss, a solution must be found,” he says.

Numerous attempts to get rid of the burden

After the Chinese aircraft were brought to Nepal, NAC meetings became only a forum to note the problems. Expensive spare parts, high insurance, and low payload capacity were all reported. But a solution never came.

On October 13, 2014, a meeting chaired by then-NAC Chairman Shivasharan Neupane decided to instruct the management to request the Government of Nepal regarding the problems encountered in the operation of the Chinese aircraft. On December 28, 2014, the Board of Directors meeting instructed the management to submit a proposal to the Ministry regarding the problems encountered in operating the grant-provided aircraft and the remaining aircraft to be purchased.

At that time, the committee led by General Manager Kharel submitted the report to the Ministry. When submitting the report, the Ministry was informed about the high price of parts, the expensive air insurance premium, the low payload capacity, the lack of reliable maintenance service, and the high cost of the pilots and technical aspects of the Y-12E aircraft.

On January 23, 2015, the meeting chaired by then-Board Chairman Shivasharan Neupane determined that it was necessary to analyze the aircraft in the process of being brought on a subsidized rate and reach a conclusion, and a request was made to the Ministry.

After being grounded for a long time, NAC explored all three options: auction, sale, and lease. No one has agreed to accept the Chinese aircraft under any option.

On May 14, 2015, the meeting chaired by Neupane requested a solution to the problems encountered in the operation of the Chinese aircraft.

On March 1, 2015, the meeting chaired by then-Secretary Prem Kumar Rai determined further complications regarding the operation of the MA-60 and Y-12E aircraft. It decided that the loss of revenue due to low payload capacity should be borne by the Chinese side.

The meeting decided that AVIC should take responsibility for free maintenance for 10 years, training should be ensured on time, similar to ATR and DHC, the insurance premium should be reduced, and the Chinese side should ensure that the documents and equipment for the MA-60 and Y-12E aircraft are provided in a language understandable by the pilots (English). But AVIC and Harbin ignored all these points.

On February 18, 2018, the meeting chaired by Krishna Prasad Devkota decided that the maximum utilization of these aircraft should be ensured, and the profit/loss from operating/not operating them, including insurance, the condition of the pilots, and total expenses, should be included.

On June 14, 2019, the meeting chaired by Board Chairman Madan Kharel demanded a management commitment and action plan for the operation of the MA-60 and Y-12E. On June 1, 2020, the meeting chaired by Sushil Ghimire demanded an integrated ‘Domestic Business Plan’ with reimbursement for the MA-60 and Y-12E within seven days. When this was not secured, Ghimire decided to ground the aircraft.

 Auction/sale notice issued, no takers

After being grounded for a long time, NAC explored all three options: auction, sale, and lease. No one has agreed to accept the Chinese aircraft under any option.

The NAC Board of Directors meeting first decided to lease the aircraft on September 8, 2022. A 45-day notice was issued on September 14, but no company came forward. When a 15-day notice was re-issued on November 2, 2022, no company showed interest.

On November 16, 2022, NAC submitted a letter to Executive Chairman Yubaraj Adhikari to form a subcommittee for auction/sale. The subcommittee was formed on November 17, 2022. On the same day, it was decided to evaluate the Chinese aircraft. On December 14, a letter was written to the seller/manufacturer informing them of the plan to proceed with the sale process, but no response was given.

On August 15, 2023, the NAC Board of Directors meeting requested the NAC leadership to hold a trilateral discussion with the Chinese side, including AVIC, NAC, and the government, to make an appropriate decision regarding the Chinese aircraft going for an alternative.

On August 21, the Board of Directors sent a letter to the Ministry regarding converting the Chinese aircraft into a grant. A reminder was sent to the Ministry again on September 3.

On December 13, 2023, the NAC Board of Directors meeting instructed the management to proceed with the auction/sale process of the aircraft. On February 2, 2024, a subcommittee for the evaluation of the aircraft was formed. On February 22, the proposal for auction/sale of the Chinese aircraft was opened. But no sealed proposals were received.

The aircraft, purchased with a loan of Rs 3.14 billion, incurred a loss of Rs 2 billion during the seven years they were operated.

According to NAC Information Officer Sah, some proposals were received via email. MS Alphabet Aviation and Engineering of Thailand, MS Latitude Aero Company, and MS C & L Aerospace had sent emails.

On September 27, 2024, the NAC Board of Directors meeting decided to “re-inform the Ministry, as the support of the friendly nation, the Government of China, is also involved, and request the publication of a negotiation notice and sale at block value as per the rules.” “A request has been made to the Ministry accordingly, but no concrete decision has come from the Ministry on what to do,” says NAC Information Officer Sah.

The aircraft, purchased with a loan of Rs 3.14 billion, incurred a loss of Rs 2 billion during the seven years they were operated. Since then, for the five years they have been grounded, NAC has paid Rs 1 billion to the Civil Aviation Authority of Nepal and the insurance company for parking and insurance fees.

In this way, the total loss has already equaled the loan amount taken. And to break even, the Corporation needs to earn a total amount of more than Rs 6 billion to cover the loss and the loan. Moreover, when the interest on the loan, which is to be repaid over 20 years, is added, the total amount becomes much higher.

However, no one has been held responsible for this loss of more than Rs 6 billion. Neither has any investigation been conducted, nor have constitutional or public bodies taken any steps to hold anyone accountable.