Nepal Airlines Seeks Over $1 Billion Loan for Fleet Expansion and Debt Management
Nepal Airlines, the state-owned flag carrier of Nepal, has initiated a significant financial move by issuing a request for expressions of interest (EOI) on January 23, 2024, to secure over USD 1 billion in loans. This ambitious endeavor aims to support the airline’s expansion plans, including aircraft acquisitions, hangar construction, and the management of existing debts.
According to the EOI details, Nepal Airlines is looking for a loan term of 25 years, with the possibility of extensions upon mutual agreement. The airline emphasizes the need for a fixed interest rate for the entire duration of the loan, with quarterly interest payments. The breakdown of the loan requirement is as follows: USD 565 million for new aircraft acquisitions, USD 415 million for existing loan management, and USD 38 million for a hangar construction project.
The airline outlines specific criteria for potential lenders, including international financial transaction licensing, experience in financing at least two projects worth over USD 1 billion in the past seven years, and a net worth of at least ten times the loan amount. Notably, Nepal Airlines will only consider proposals from individual lenders, including governments, financial institutions, and other qualified lending organizations, excluding joint ventures.
Nepal Airlines currently operates international flights with two A330-200s and two A320-200s and serves domestic routes with two DHC-6-300s. The carrier has been actively pursuing fleet expansion, including plans to acquire short-take-off and landing aircraft and lease additional narrowbody jets for international network growth.
“The primary goal of this international loan is to bolster our fleet and refinance existing loans at a more favorable rate, potentially under 5% per annum,” a Nepal Airlines spokesperson informed The Kathmandu Post. This move aligns with the airline’s strategy and has the approval of its board of directors, following government authorization.
However, the EOI’s issuance has reportedly surprised the government, with Finance Minister Prakash Sharan Mahat emphasizing the need for organizational restructuring before any expansion plans. The airline currently faces a significant financial burden, servicing a NPR 48 billion rupee (USD 360.5 million) loan at a 10% annual interest rate for its Airbus fleet purchased last decade.
Interested lenders have until March 6, 2024, to obtain the complete EOI documents from Nepal Airlines, with initial submissions due by March 7. Following a shortlisting process, selected lenders will be invited to present detailed proposals. Nepal Airlines has stated that once the shortlist is compiled, it will seek further approval from the cabinet.
This proactive step by Nepal Airlines to secure a substantial loan reflects its commitment to modernizing its fleet, enhancing operational efficiency, and improving financial sustainability in the competitive aviation industry.