NAC sends $500k to Airbus as lock-up fee


Nepal Airlines Corporation (NAC) has sent a “commitment fee” to Airbus to buy two A320-200 aircraft as per a revised memorandum of understanding (MoU) signed on April 6. NAC managing director Madan Kharel said they sent US$ 500,000 to the European aircraft manufacturer on Monday to formally confirm the order.

As per the MoU, Airbus will deliver the first aircraft in February 2015 and the second by March. The April 6 pact replaced an earlier agreement signed on Nov 9, 2009. The deal was dumped after it became engulfed in controversy, and Airbus returned the lock-up money. “NAC has to send a 22 percent advance payment before Airbus delivers the jets,” Kharel said. “We will have to make payment in at least four to five instalments to clear the total bill.” The remaining 78 percent of the cost has to be sent to Airbus after the jets roll off the assembly line.

According to Kharel, the commitment fee is based on the catalogue price of US$ 150 million for two jets quoted by the manufacturer, which is also the maximum price of the plane. “The exact price of the jets, however, will be known only after the plane maker finishes construction,” Kharel said.

According to government officials, the price of the aircraft is based on the “base price” offered by Airbus in 2008. However, the company has added manufacturing escalation price and other charges for extra facilities in the jet. Airbus had quoted a price of US$ 41.28 million for an A320-200 jet in the 2009 accord.

The national flag carrier decided to send the commitment fee to Airbus after the Employees Provident Fund (EPF) promised to invest in the aircraft purchase project. The EPF has agreed in principle to lend Rs 9 billion as per its letter of intent (LoI) sent to NAC. The EPF has set an interest rate of 12 percent per annum on the loan. A LoI is an initial proposal for a business agreement that outlines a business proposal in advance. “The two parties will negotiate the final terms of the contract soon,” Kharel added.

Meanwhile, chief executive officer of the EPF Krishna Prasad Acharya said they sent the LoI to NAC on Sunday and would go through all the details before signing the final agreement. “We will ask NAC for all the documents to see whether the project is viable for us to issue a loan,” Acharya said.

NAC sped up the jet purchase process with Airbus after getting its board’s green signal which followed the Cabinet’s decision on Feb 11, 2013 to revive the old agreement. On Aug 1, 2012, the government had decided to be a guarantor.
The Cabinet’s move came after the Supreme Court’s decision that the now-defunct Public Accounts Committee’s (PAC) order to the government to cancel the deal on Dec 28, 2009 was interference in NAC’s matters, and that the order does not hold any legality.

On Oct 26, 2009, the NAC board had decided to purchase two aircraft from Airbus to expand its international fleet. However, with controversy surrounding the purchase process, the then PAC had directed the government to cancel the deal. Subsequently, on May 25, 2010, the Finance Ministry directed the Tourism Ministry to scrap the purchase process altogether.

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