NAC to buy European aircraft from US company

Nepal Airlines Corporation (NAC) today selected an American Company to purchase 2 wide-body European aircraft.
The corporation will issue a letter of intent (LoI) to the American leasing company – AAR Corp – tomorrow to supply two-wide body Airbus A 330-200 aircraft, NAC managing director Sugat Ratna Kansakar informed. A letter of intent is a document expressing an intention to enter into a contract at a future date.
The NAC board – led by secretary of Ministry of Culture, Tourism and Civil Aviation – today unanimously agreed to award the supply contract to US-based AAR Corp.
The board has selected the lowest bidder – AAR Corp – which has proposed to supply each aircraft for $104.8 million, he said, adding that the negotiations with the supplier will be held very soon in Kathmandu. "The cost of the aircraft and delivery date will be finalised during the negotiations."
Kansakar said that the ‘offer price’ quoted by the company was not the final price as it may go up slightly up due to inflation when final contract negotiations are completed. "When the cost of the aircraft will be finalised, a purchase agreement will be signed after the negotiations."
"We will ask the supplier to come to Nepal as soon as possible to sign an initial memorandum of understanding (MoU),” he said, adding that the corporation has targeted concluding the MoU within two weeks so that it can begin detailed technical and financial negotiations. A technical team consisting of members of the two parties would be formed to hold detailed negotiations. The entire process could be completed within three to four weeks.
There were six bidders in the final round. The corporation board selected AAR Corp due to the appropriate rate it proposed and the credibility of the company. Though the bid evaluation committee had evaluated the proposals of 10 bidders, four did not qualify in the initial stage itself.
A notice inviting proposals from aircraft manufacturers, airlines, aircraft leasing companies and bankers for two Airbus A330-200 aircraft was issued on September 26. There were 11 hopeful suppliers, and the highest price quoted was $146 million.
The corporation has stipulated that the jets should not have more than 1,000 flight hours on them, and that the date of manufacture should not be before January 2014.
The AAR Corp has – in request of proposal – offered to deliver the first aircraft by September 2017 and the other by March 2018.
The supplier should include the cost of a minimum set of flight and maintenance crews for the duration of at least one year. It should also include the cost of consumable spares and tools required for day-to-day line maintenance up to the ‘A’ check level for a year.
The carrier has proposed procuring long-range jets to serve destinations in North America, Japan, Australia and the UK as they have been identified as prospective markets for Nepal over the next 20 years.
The corporation had purchased two Airbus A320-200 aircraft in 2015 by borrowing Rs 10 billion from the Employees Provident Fund (EPF) in its first fleet expansion in 27 years.
The national flag carrier currently has two narrow-body Airbus aircraft and one narrow-body Boeing aircraft in its international fleet. The fleet is flying to eight destinations. After addition of two wide-body aircraft, the corporation start flying on long haul destinations, as the average flight range of the A 330-200 series aircraft will be nine to 10 hours.
The national flag carrier is preparing to fly to Japan and South Korea with the new two wide-body aircraft that is expected to not only increase its market share but also recover its lost glory.
So far, the national flag carrier has received landing permit for Inchhan International Airport in South Korea and Saudi Arabia. Kansakar also informed that the corporation has also approached civil aviation authority of Japan to receive landing permit. "In the long run the corporation also plans to expand its network to Australia and Europe," he added.
Though, international lenders are ready to invest on corporation, the corporation has approached EPF and Citizen Investment Trust (CIT) for the loan to buy the two aircraft.
The corporation had – in the past too – borrowed from the EPF and CIT to purchase the two narrow-body Airbus aircraft. The government-owned financial institutions have been charging nine per cent interest rate from NAC. "But this time the corporation has also approached some private banks," Kansakar said, adding that the private financial institutions are positive about consortium financing. "They are expected to quote an interest rate that is lower than that of the government-owned financial institutions."
The government is giving guarantee for the loan that NAC is planning to obtain.
The corporation will soon finalise loan agreement with the government-owned financial institutions, as the supplier has been issued LoI and invited for negotiations," he added.