NAC Defaults on Principal Payment of Loans: Report

Nepal Airlines Corporation (NAC) has failed to pay the principal installments on loans taken to purchase narrow-body and wide-body aircraft for Fiscal Year 2080/81 (2023/24), although it has covered the interest payments. According to the Government of Nepal's Annual Report on Public Debt, NAC did not make any principal payments to its lenders last year, with Rs 7.97 billion in interest capitalized.

As a result of these unpaid dues, NAC’s total liability increased from Rs 41.39 billion at the start of the fiscal year to Rs 49.37 billion by its close. The report attributes this rise in debt to compounded interest and penalties, worsened by the impact of the coronavirus pandemic on NAC’s operations. The government has pledged a Rs 34 billion guarantee if NAC defaults on its payments.

While NAC claims it has been meeting installment obligations, Thakurjung Thapa, chief manager of the Employees' Provident Fund (EPF) — one of NAC’s lenders — confirmed that a backlog of principal remains unpaid. “The NAC has been paying recent installments, but old liabilities have not been cleared. The airline has only managed interest and penalty payments, not the principal,” Thapa said.

NAC Spokesperson Ramesh Paudel, however, insisted that payments covering both principal and interest are being made. He stated that installments on the two narrow-body Airbus A320 aircraft are fully covered, while payments for the wide-body Airbus A330 loans are partially met. “Installments include both principal and interest,” Paudel affirmed, noting that payments were made recently.

On October 17, NAC issued a press statement confirming it had fully paid the installment for the narrow-body aircraft loans and partially paid the wide-body loan installment, totaling Rs 539.55 million.

In order to increase flights to international destinations, the Nepal Airlines Corporation took a loan of Rs 9.98 billion from the Employees' Provident Fund on June 18, 2013 to purchase one narrow-body aircraft.

On June 11, 2017, it sighed another loan agreement of Rs 11.99 billion to purchase a wide-body aircraft, with a government-backed guarantee of Rs 12 billion. In total, EPF provided NAC with Rs 21.97 billion in loans.

Additionally, NAC obtained a Rs 12 billion loan from the Citizen Investment Trust (CIT) on May 16, 2017, to finance another wide-body aircraft, with an agreement to repay both principal and interest within 15 years.