Royal Nepal Airline Corporation History

Address:

RNAC Building
P.O. Box 401
Kanti Path, Kathmandu
Nepal

Telephone: 977 1 220757
Toll Free: 800-26NEPAL
Fax: 977 1 225348

Website: www.catmando.com/com/rnachold/rnac.htm

State-Owned Company
Founded: 1958
Employees: 2500
Sales: $110 million (2000 est.)
NAIC: 481111 Scheduled Passenger Air Transportation; 481112 Scheduled Freight Air Transportation; 481211 Nonscheduled Chartered Passenger Air Transportation; 481212 Nonscheduled Chartered Freight Air Transportation; 48799 Scenic and Sightseeing Transportation, Other; 488111 Air Traffic Control; 488119 Other Airport Operations; 48819 Other Support Activities for Air Transportation; 56172 Janitorial Services

Company Perspectives:

The company's mission is to manage the concerned air transport service inside or outside the Kingdom of Nepal in a safe, efficient, well-managed, economical and proper manner. The Corporation may exercise its power to developing air transport services so as to ensure maximum profitability and make available such services at cheap fare as far as possible. Key Dates:

Key Dates:

1958:: The Nepali government creates RNAC.
1966:: Aerial sightseeing tours commence.
1972:: RNAC begins operating its first jet airliner.
1992:: Nepal's domestic market opens to competition.
1997:: RNAC begins to suffer shortages of cash and planes.
2000:: Aircraft leasing scandal draws protests and resignations.

Company History:

Royal Nepal Airline Corporation (RNAC) is the state airline of Nepal, and one of the driving forces behind the country's tourist industry. Thousands arrive every year to visit the birthplace of Bhudda or to see Mount Everest, the tallest mountain in the world. Royal Nepal maintains international branches in Hong Kong, Shanghai, Singapore, Bangkok, Dubai, Frankfort, London, Osaka, Calcutta, Delhi, Bombay, and Patna. Infrastructure in the closed kingdom was very primitive at the time of RNAC's formation, and in many cases, the new air routes provided an alternative to weeks of walking between destinations. The airline has had to operate at the most rudimentary airports and has had to contend with a high local cost of fuel, which must be carried through land routes controlled by India.

Elevated Origins in the Late 1950s

To say Nepal's topography is unique would be a profound understatement. In fact, the mountainous terrain has never been traversed by railroad. Even paved roads are rare. While the elevation at the Kathmandu Airport is some 4,300 feet, some of RNAC's flights start at 12,300 feet (from Syangboche), and another runway at 9,300 feet features a 1,000-foot drop from one end to the other, making it the ultimate ski jump.

To add to the adverse flying conditions, most of RNAC's airports lack communications equipment and navigational aids. Lack of VFR (visual flying rules) meant that weather would cancel many flights. For example, in his 1991 book Glimpses of Tourism, Airlines, and Management in Nepal, B.R. Singh reported that 24 of the 34 airports served by Royal Nepal Airline Corporation were actually inoperative during the Monsoon season.

In the 1950s, Indian airlines were permitted to fly to Nepal's capital city, Kathmandu, as King Tribhubana Bir Bikran effected a modernization of the country's government and infrastructure. Tourists, however, were not even allowed in Nepal until 1951 (early climbers of Mt. Everest entered from Tibet); the tourism industry in Nepal only began to develop after 1960, according to P.N. Vaidya's 1987 book Air Transport in Nepalese Perspective: A Case Study of RNAC. By the 1980s, though, tourism would be second only to foreign aid as a source of foreign currency.

The Nepali government and private sector joined to form the Royal Nepal Airline Corporation (RNAC) on July 1, 1958 (it was formally incorporated four years later). The government's partner was a managing agent from India who held the minority share in the airline. RNAC was obliged not only to provide aviation services, but also to construct its own landing fields (the term 'airports' would be an exaggeration for most of them).

On July 3, 1958, staffed by 97 employees, the new airline began flying a single Douglas DC-3 Dakota aircraft on several routes formerly operated by the Indian Airlines Corporation. The first towns connected were Simra, Biratnager, Pokhara, and Bhairahawa. Nepal's government was eager to accelerate the airline's expansion, and became its sole owner in October 1959. Three months later, RNAC took over a route to Patna, India, which connected to Delhi and Calcutta.

Compilation of a Diverse Air Fleet in the 1960s

Nepal's geopolitical situation produced a strange, politically mixed fleet, which was typically financed through aid programs from the country of manufacture. Seven more DC-3s were added to the fleet between 1959 and 1964. Furthermore, China supplied a couple of AN-2 Fong Shee aircraft which did not enter scheduled service. Bell Helicopters that had been made in the United States and leased from Singapore were also used for charters. Two Russian Mi-4 helicopters also flew on scheduled routes to remote points. The route network was expanded internally and externally, soon reaching Dhaka in what was then East Pakistan.

With the arrival of a more advanced turboprop plane in 1966--the 40-passenger Dutch Fokker F-27 Friendship--RNAC commenced aerial sightseeing tours of five of the world's eight tallest mountains. Unfortunately, this plane was lost in a crash in January 1970. Despite the setback, the airline still expanded its services both internationally and domestically, soon linking some otherwise very isolated villages. A pair of Avro 748 aircraft took over the trunk routes in 1970. The next year, RNAC dispatched a handful of Canadian DHC-6 Twin Otters--a specialized STOL (short take-off and landing) plane&mdashø airports at higher elevations. These were augmented by the even higher-performance Pilatus Porter for fields above 12,000 feet.

RNAC carried nearly 197,000 passengers in 1970--71. In 1970, Nepal reported the arrival of 46,000 tourists (not including Indian nationals, who were treated as locals in RNAC's two-tiered pricing system). Arrivals, including Indian tourists, exceeded 105,000 in 1976 and approached 163,000 by 1980.

First Jet in 1972

In 1972 RNAC acquired its first jet airliner--a Boeing 727--in cooperation with Air France. It was soon flying to Delhi, Calcutta, and Bangkok, marking the airline's first foray beyond South Asia. Nepal's increased accessibility fostered further development of a tourism industry. In January 1977, RNAC launched helicopter service to Tiger Tops National Park near the Indian border. Later that year, RNAC added jet service to Sri Lanka and Frankfurt, using leased Lufthansa jets for the Frankfurt route.

RNAC was not just bringing tourists to the country, however. It also ferried 58-ton bulldozers to Pokhara, which was inaccessible by road, for infrastructure projects there. Air mail was another important civil responsibility. RNAC carried more than 250,000 passengers and 1,700 tons of cargo in 1975--76. By the end of the 1970s, the annual passenger count had reached 400,000. Cargo traffic was virtually unchanged, held in place by equipment limitations.

RNAC's revenues were Rs 385 million in 1980--81, but the company earned just under a 1 percent return on capital. By 1983--84, however, RNAC was posting revenues of Rs 577 million and a return of 27 percent. Revenues were Rs 793.1 million for the fiscal year 1985--86. Charter traffic had grown to account for 16.4 percent of revenues, up from just 1.1 percent 15 years earlier.

Competition in the Mid-1980s

Nepal had 181,000 tourist visitors in 1985, of which 80 percent arrived by air. RNAC carried 38 percent of these tourist passengers, but that number was down from the company's peak market share of 50 percent in 1979. Indian Airlines Corporation was RNAC's main competitor, but newer entrants in the business were also competing with RNAC for market share. These companies included Singapore Airlines and Lufthansa, which started direct Kathmandu-Frankfurt service in cooperation with RNAC in October 1987.

At the time, Royal Nepal's network connected 38 domestic and 10 international destinations. RNAC was flying directly from Nepal to Hong Kong (home to many Gurkhas employed by the British Army) by 1988 via Boeing 757. In April 1988, RNAC and the CAAC (Civil Aviation Administration of China) cooperated to provide scheduled service between Kathmandu and Lhasa in the autonomous province of Tibet.

At that time, the company's fleet of 19 planes included eight Twin Otters, three Boeing 727s, and one state-of-the-art Boeing 757. The 757 was purchased in September of 1987 (Singapore Airlines and Royal Brunei were the only others also operating this advanced 757--200 variant at the time). A second 757 soon followed. The $110 million order for these two planes was Nepal's largest trade deal at the time, as reported in Air Transport World.

Nepal's air traffic infrastructure did not quite keep pace with its new aircraft acquisitions, though. The company's future managing director--Bali Ram Singh--would later lament that in the mid-1960s, the country was building three asphalt airports for its old DC-3s even as newer turboprop aircraft were being delivered. Furthermore, these runways were not extended for the turboprops until the early 1970s, when RNAC had already acquired its first jet aircraft.

RNAC reported revenues of $54.3 million in 1988--89, producing an operating profit of $17 million. With a workforce of 2,200, RNAC had become the country's largest employer and largest earner of foreign currency, bringing in roughly $15 million a year from abroad. Seventy-five percent of the company's passengers were foreign tourists. London, Dubai, Dhaka, Karachi, and Bombay were added to the route network in 1989.

Struggles in the 1990s

After the start of the Gulf War in 1990, RNAC helped retrieve a couple hundred countrymen who had escaped Kuwait for Jordan. At home, RNAC was paying $10 a gallon for fuel, which had to be trucked in through India. The airline's turnover represented one-tenth of Nepal's national budget, according to Air Transport World.

RNAC suffered a strike by pilots demanding more pay in February 1991. Dozens of domestic and international flights were affected. Prime Minister Krishna Prasad Bhattarai urged them to postpone their wage demands until after general elections to be held that May.

Political unrest delayed a much-needed upgrading of facilities and equipment at the airline, as well. One BAe 748 aircraft was reportedly parked at Kathmandu Airport for three years, according to Air Transport World. Managers longed to acquire Boeing 767s to update the aging fleet and enable nonstop service to Japan. The airline, however, was burdened with $4 million-a-month payments for its existing Boeing 757s, which accounted for nearly all of its earnings.

Half of RNAC's 645,000 passengers carried in 1990--91 were on domestic flights. Within Nepal, RNAC served 35 airfields--11 of them at tourist destinations. Due to the nature of the terrain, some of RNAC's flights had durations of less than ten minutes. Annual revenues exceeded $110 million in 1991--92. Then, the airline suffered more labor strikes in February 1992. A year later, the company terminated employees with more than 30 years seniority in order to make room for the new generation of workers.

The domestic market was liberalized in 1992, and a handful of new competitors emerged: Necon Air, Nepal Airways, Everest Air, and Himalayan Helicopters. According to R.E.G. Davies in the book Airlines of Asia Since 1920, by 1997 these four competitors accounted for 70 percent of Nepal's domestic air traffic.

Scheduled service to Japan was inaugurated in October 1994 with a Boeing 757 aircraft--a 15-hour trip requiring a refueling stop in Shanghai. Prior to that, RNAC had been bringing in Japanese tourists with charter flights.

The positive trend that came from inauguration of the Japan route, though, seemed to end just a few months later when a Twin Otter crashed in January 1995, killing its pilot. RNAC lost another plane, a Pilatus Porter, in November 1998. Economic constraints soon frustrated RNAC's efforts in maintaining enough jet aircraft in its fleet. Finance ministry officials declined to subsidize two new Airbus A330s worth $100 million each for the airline in April 1997. RNAC had by this time begun to post losses.

In October 1998, at the height of the tourist season, RNAC had to return a Boeing 727 when it went off lease. The scenario was repeated three months later: when management attempted to lease a Boeing 757, complete with crew, from China Southwest Airlines, RNAC's pilots launched an eleven-day strike in March and April 1999 that resulted in the lease being cancelled. RNAC went through four chief executive officers in 1998--99, while the airline's board sought a solution to the aircraft shortage and debt problem. Swirling coalition alliances in national politics likely played a hand in the high turnover at the top.

RNAC was overwhelmed when Indian Airlines suddenly suspended its operations into Nepal in December 1999 following a hijacking. Indian Airlines had typically carried 1,000 passengers to and from Kathmandu during the height of the tourist season. Thus, RNAC added its own service to Bangalore in the south of India within a year.

Adding to RNAC's struggles as the millennium approached were allegations of corruption which periodically surfaced. One case involved Dinesh Dhamija, who later founded the Ebookers Internet travel site. Dhamija had been accused of receiving his post as director of RNAC's European operations in the early 1990s on account of cronyism with Prime Minister Girija Prasad Koirala. Dhamija won a substantial settlement with the airline after a bitter court battle over these charges.

An even larger scandal revolved around the lease of a Boeing 767 aircraft from Austria's Lauda Air, which entered service in December 2000 over protests from employees and government officials. The latter claimed the deal was unnecessary since RNAC was not getting enough usage from its two existing Boeing 757s; further, the actual cost per flight hour of the Lauda jet ended up being $5,000 ($1,150 above the cost specified in the contract). RNAC chairman Haribhakta Shrestha was suspended during an investigation, along with other RNAC executives; Nepal's tourism and civil aviation minister Tarani Dutt Chataut resigned soon after.

Then another Twin Otter crashed into a hill in July 2000, killing all 25 people aboard. To add insult to injury, in October 2000 a bird strike at Tribhuvan International Airport in Kathmandu knocked out an engine on a Boeing 757, causing $60 million worth of damage. This was the second such incident in a month. Airport authorities in Nepal began hiring hunters to keep birds away by shooting them down or scaring them off with firecrackers. They blamed the presence of garbage dumps around the airport for exacerbating the problem.

As the company entered the new millennium, and its struggles seemed to continue, the topic of privatization continued to come up regularly at planning meetings--just as it had for the past twenty years. Some felt that the airline would be better equipped to deal with its obstacles if it could operate as a private corporate entity, instead of being restrained by the necessity of answering to the Nepalese government.

Principal Competitors: Asian Airlines; Bhudda Air; Everest Air; Lumbini Airways; Necon Air; Nepal Airways.

Royal Nepal Airline Corporation History

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Key Dates:

Company History:

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