Grounded Chinese Planes Auction: No Buyers, Even at Junk Prices

08th Feb 2024

In a setback for Nepal Airlines Corporation, efforts to auction off five Chinese planes grounded for over three years have hit a roadblock once again. Despite slashing prices to junk levels, no offers were received during the latest round of global tenders, prompting the corporation to initiate another call for bids.

The corporation had issued an auction notice on the 5th of Poush to sell two MA-60 and three Y-12E aircraft ‘as is’. A new notice has been published to allow individuals or organizations to submit tenders by Falgun 9, as no company submitted an offer to purchase these aircraft by Magh 21.

Following approval from the Ministry of Finance, the corporation initiated a second round of international bidding to sell the planes. The corporation conducted the second auction on the 5th of Poush after the initial attempt failed to attract buyers. These aircraft have been grounded at Tribhuvan Airport for approximately three and a half years.

The ships were imported from China 13 years ago. The corporation’s board of directors decided to ground the aircraft starting from the 15th of Shrawan, 2077 BS, citing inability to cover operating expenses. Despite being grounded, the corporation has been covering their insurance and parking fees to the Nepal Civil Aviation Authority.

Due to prolonged grounding, the aircraft cannot be sold even at junk prices. Corporation sources attribute the lack of tender submissions to the requirement of a 10 percent bond on the promised amount during the global tender process.

“A valuation of 38 crore rupees has been set for the five aircraft based on their current condition. This essentially values them as junk,” stated a corporation source. “Had they been operational, their value would have been different. Unfortunately, they are grounded.”

These flights were halted during the tenure of the then Culture, Tourism, and Civil Aviation Minister Yogesh Bhattarai. A corporation official noted, “Even during their operational period, there were normal losses, but the situation worsened after they were grounded.”

The decision to cease the flights was influenced by the interests of a private sector airline company, with political factors also playing a role during the initial purchase of the aircraft.

The acquisition of these aircraft by Nepal involved a total expenditure of 6.67 billion 10 million rupees, facilitated through grants and soft loans. Notably, two MA-60 and one Y12 aircraft were donated by the Chinese government, while the remaining four airplanes were procured under the government-to-government procurement system with a concessional loan from China’s Exim Bank.

Despite the initial investment, challenges such as a lack of pilots, inadequate maintenance and spare parts, high fuel consumption, and overall non-profitability have led Nepal Airlines Corporation to ground these aircraft. One of the Y12 planes met an unfortunate end with a crash in Nepalgunj.

The decision to auction the grounded airplanes comes after the corporation’s assessment that operating these aircraft results in significant financial losses. Since their import from China in 2071 for domestic flights, the corporation has faced an average annual loss of Rs 38 crore from the operation of the six aircraft.

The corporation’s decision to auction off the grounded airplanes underscores its determination to mitigate financial losses and streamline its operations. However, the repeated failure to attract buyers raises questions about the feasibility of offloading these assets and the broader challenges facing Nepal’s aviation sector.