BY MANOHAR SJB RANA
One of the main objectives of NAC is to optimize profits. However‚ its other objective of offering economical fares and rates to the people of Nepal to fulfill its social responsibilities goes quite contrary to or are quite incompatible with the objectives of profit optimization
The issue of privatizing the state owned Nepal Airlines had been in the media for quite a long time—more than a decade and half. Some months ago, during the investigation, by the Public Accounts Committee of the Parliament, regarding the purchase of one A-330 and one A-320 aircraft by NAC, the media had flashed news that the government was planning to convert NAC into a public limited company, with 51 per cent share to be retained by the government, and the rest going to the strategic partner and the people or the private sector.
One of the main objectives of NAC is to optimize profits. However, its other objective of offering economical fares and rates to the people of Nepal to fulfill its social responsibilities goes quite contrary to or are quite incompatible with the objectives of profit optimization. In order to meet its social responsibility, NAC has been made to operate its domestic services on unprofitable routes by keeping fares and rates at uneconomically low levels due to political reasons.
Even though Nepal is a republic now, the government still regards appointments of Board Directors and senior managers as their prerogative. Besides, they are using such appointments as a reward for political patronage or as the gift of the government. Such appointments have deprived Nepal Airlines of competent management professionals at senior management levels.
Nepal Airlines is undercapitalized. Besides, it has to clear its dues and loans by itself, as the government has not expressed its commitments to inject further capital. It also needs to introduce at least one aircraft, either narrow-body or wide-body, in its fleet within a span of few months on the basis of its business plan in order to be able to sustain its operation and to meet the competition of the international operations as the two B-757s may be grounded for good at any time or may require huge sum of money for maintenance. The DHC-6/300s, Twin Otters, which it has been using for domestic operations are more than 30 years old and needs to be replaced by modern age aircraft immediately.
The main objectives of privatization are to increase efficiency and economy in operation, make the management accountable to the shareholders and to generate resources, both human and financial from the market to improve the operation of the enterprises.
Experience of the airline industry has shown that the state owned airlines have become more efficient after privatization as a result of being able to attract capable senior managers from the private sector. They have also been able to finance huge re-equipment programs without direct state subsidy or equity injections. Moreover, they have been able to get private loans on preferential interest rates without guarantee from their sponsoring government. The example of the British Airways will be instructive.
It has become necessary to privatize the airline in order to give it continuity and to run it successfully by making it to sustain its future operations. But, outright sale of ownership to some individual/ organization will neither be in the interest of the country nor its people. Therefore, the share of ownership should be allocated approximately in the ratio of 3:5:2. That is, 30 per cent to the Promoters (those who manage), 50 per cent to the general public and 20 per cent to its employees, so that a large number of people can participate in its management.
If the government opts for some control over its management, it may retain approximately one-fourth of the shares and allocate about the same percentage to the Promoters and the rest to the employees and the general public. Because with 51 per cent of share-holding, the government would again have a say and undesirable control over its management which may influence its activities in the same manner as has been observed in the case of poor-performing state owned enterprises. Our experience has shown that the performance of the public limited companies which has more than 50 per cent of government share-holdings has been very unsatisfactory. Therefore, the government should consider and also initiate full privatization of NAC by selling all its shares to the private investors approximately in the ratio as mentioned above or it should reduce its control to the minimal.
The local business entrepreneurs also have the expertise and are competent enough to run business enterprises in a successful manner. Therefore, the government should give priority to the private entrepreneurs or business community of the country for a stake in the national flag carrier. It should design the processes/ modalities of privatization in a way that encourages investment from the local/ national entrepreneurs, rather than with the intentions of handing it over to the foreign parties (investors) in the name of strategic partnership. With such a modality, the government will not only provide an opportunity to the private entrepreneurs to prove their competence but will also help to manage NAC with the participation of its own people in line with the liberalized economic policy.
Rana is with NAC
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