Nepal Airlines has formally asked its Chinese supplier to take back five aircraft delivered around a decade ago.

The planes—four 17-seater Y12e aircraft and two 56-seater MA60 aircraft—were acquired between 2014 and 2018 under a deal that involved both grants and loans totalling Rs6.66 billion. One of the aircraft was lost in a crash in Nepalgunj.

Since 2020, the five remaining planes have been parked unused on the eastern edge of the runway at Tribhuvan International Airport in Kathmandu. According to airline officials, the aircraft are deteriorating from disuse, with most of them visibly rotting.

These grounded planes continue to cost the airline significantly, with insurance, parking, and maintenance cost amounting to an annual loss of Rs200 million.

The MA60, produced by Xi’an Aircraft Industrial Corporation, and the Y12e, a twin-engine turboprop manufactured by Harbin Aircraft Industry Group under the Aviation Industry Corporation of China (AVIC), have both proven unsustainable for operations.

In a meeting held on December 11, 2024, Nepal Airlines’ Executive Chairman Yubaraj Adhikari requested that AVIC International take back the planes as a goodwill gesture, citing the close diplomatic ties between Nepal and China.

According to the meeting minutes obtained by the Post, Adhikari proposed returning two MA60s and three Y12es that had been grounded since July 2020.

As a backup proposal, Adhikari also suggested selling the aircraft in coordination with AVIC. He referred to a March 17, 2021 decision made by the Nepal government, which permitted the airline to dispose of the aircraft in collaboration with the supplier or manufacturer.

Nepal Airlines formally sought AVIC’s consent to proceed with the sale.

However, AVIC representatives declined to provide immediate approval for disposing of the aircraft.

They clarified that, under the inter-governmental agreement, the aircraft had been transferred to the Chinese government before being handed over to Nepal Airlines. Specifically, one MA60 and one Y12e were delivered as grants, while one MA60 and three Y12e came through a soft loan arrangement.

Although AVIC did not give approval for the sale, the company agreed to help Nepal Airlines find potential operators for the planes. They suggested that many Y12e operators in China might be interested.

Additionally, AVIC representatives suggested that domestic agencies, such as the Nepal Army or the Civil Aviation Authority of Nepal, could use the aircraft.

The matter is now being considered for escalation to the government level in China, according to AVIC officials present at the meeting.

Still, AVIC emphasised that it expects all outstanding dues to be settled before any further steps are taken. Nepal Airlines acknowledged there were pending payments related to technical support and spare parts. AVIC agreed to resume customer and after-sales service, including spare parts supply and training, once dues are cleared.

The airline confirmed that it would clear training and technical support payments after proper verification.

Discussions over invoices related to spare parts would be held separately to reach a mutual agreement. Nepal Airlines also requested the return of the spare parts and inventories supplied for the Chinese planes.

Following the meeting, Nepal Airlines forwarded the minutes to the Ministry of Finance for guidance on next steps.

Subas Dangi, the airline’s spokesperson, stated that both options—leasing and selling the aircraft—have already been unsuccessful.

The airline has now turned to the Ministry of Finance through the tourism ministry, its line ministry, for suggestions, said Dangi.

The decision to ground the Chinese aircraft was made in July 2020, following the board’s conclusion that operational costs far outweighed revenues.

Since then, the aircraft have sat idle, but the airline continues to incur significant costs for parking, insurance, and maintenance charges, amounting to roughly Rs200 million a year.

Nepal Airlines attempted to lease the aircraft through a public notice on September 14, 2022, with a deadline of October 31, which was later extended to November 16. No interested bidders came forward.

The airline then tried to sell the planes. On January 19, 2023, it invited proposals for an independent appraisal of the two MA60s and three Y12es. An American firm valued the entire fleet at Rs220 million.

Concerned about public backlash and possible anti-corruption investigations due to the low resale value, the airline conducted its internal valuation.

Based on this in-house assessment, Nepal Airlines set the asking prices at $8,225,501 for MA60 registered 9N-AKR, $4,922,235 for MA60 9N-AKQ, $2,412,671 for Y12e 9N-AKV, $2,358,860 for Y12e 9N-AKT, and $1,658,517 for Y12e 9N-AKS. Altogether, the total asking price for the five aircraft was $19,577,784, far higher than the American company’s estimate.

Despite these efforts, the second attempt to sell the planes also failed to attract any buyers.

The initial agreement to procure six aircraft—two MA60s and four Y12es—with AVIC was signed in November 2012. China provided a total of 408 million yuan (equivalent to Rs6.67 billion at the time), which included a 180 million yuan (Rs2.94 billion) grant for one MA60 and one Y12e, and a 228 million yuan (Rs3.72 billion) soft loan for an additional MA60 and three Y12es.

Under the loan terms, the Nepali government is obliged to pay an annual interest rate of 1.5 percent, plus a service and management fee of 0.4 percent. The Ministry of Finance, which took the loan, charges Nepal Airlines 1.75 percent annual interest on the disbursed amount.

The deal included a seven-year grace period, during which Nepal Airlines did not need to make interest or principal payments. This grace period expired in March 2021.

Now that the grace period has ended, officials admit that the Chinese aircraft have turned into liabilities rather than assets. They are often referred to as “white elephants,” with no realistic prospect of resale.

Nepal Airlines has acknowledged that the planes have become burdensome, plagued by frequent technical issues and a lack of trained personnel to operate them.

The airline continues to struggle under the weight of nearly Rs50 billion debt, and the grounded aircraft have only deepened its financial woes.