MoF Approves Proposal to Hold Talks with Lufthansa Consulting

The Ministry of Finance (MoF) has approved the Tourism Ministry’s proposal to hold negotiations with Lufthansa Consulting of Germany, which has shown interest to become a strategic management partner in Nepal Airlines Corporation (NAC).

What they are saying:

• “We have asked the Tourism Ministry to proceed ahead by remaining within the realm of the prevalent laws. It’s their job to refer to the existing laws and proceed ahead,” said Ganesh Prasad Pandey, head of the Corporation Co-ordination Division at the Finance Ministry.
• After receiving the green light, the Tourism Ministry is preparing to table the proposal at the Cabinet to get a final approval.

The details:

• According to the Tourism Ministry, there is a provision in the Public Procurement Act that allows state-owned enterprises to purchase services from foreign companies. However, the new government may reverse any decision taken by the Ministry.
• The Finance Ministry has asked the Tourism Ministry to hold talks if the German company can introduce reforms in NAC and provide optimum benefits to the state-owned airline company, according to Tourism Ministry officials.

As per the proposal:

• The first phase of the partnership: Diagnostic Assessment, will last for four weeks.
• The second phase of the partnership: Restructuring Plan, will last for five months.
• The third phase of the partnership: Implementation phase, will last for three years.
• Payment for the third phase will be based on improvement in profitability over the baseline.
• Lufthansa consulting can take charge of NAC for three years, and the contract can be extended by another two years.
• The proposed fee for its services is Rs. 338.62. million.
• Income tax on the fees will be Rs. 103 million.

After the company placed this proposal, the Tourism Ministry had sought the Finance Ministry’s input before forwarding the proposal to the Cabinet for final approval.

The Backstory:

• In 1970, the then Royal Nepal Airlines Corporation (RNAC) had invited experts from Air France under a program to improve its management, and they handled most of the managerial positions until 1973.
• In 1972, RNAC acquired its first jet, a Boeing 727, in cooperation with the French carrier. Since the expiry of the contract with the French company, the government has been trying to find a strategic partner to improve NAC’s deteriorating performance amid recurring cases of corruption.
• Last March, the Tourism Ministry had invited “closed” Requests For Proposals (RFP) from reputed airlines in the US, UK, France, Germany, and Australia through their embassies in Kathmandu to rope in a strategic management partner in the national flag carrier. Lufthansa Consulting, an independent subsidiary of the Lufthansa Group, was the sole applicant.