There are three years to go for the golden jubilee of Royal Nepal Airlines, but it seems doubtful whether the flag carrier will even be around to celebrate it.

The airline suffers an image problem caused by unreliable service. It does not compete in the domestic market, much of its potential earnings from the Gulf and East Asian routes have been gifted to others and there is scant long-term analysis of international and domestic opportunities, on the basis of which, the airline can set out a coherent marketing strategy. This gap affects route planning, fleet structure, pricing and promotion, staffing and terms of service.

To be sure, the airline has also been hindered by external factors like political interference and restrictive legislation. Successive boards of directors were unsuited to the task of running a modern airline in a deregulated environment.

Royal Nepal Airlines should be the leading domestic carrier and the preferred airline for people traveling in and out of Nepal. It is neither. Lucrative domestic routes have been lost to private operators and there are price constraints on remote area destinations it is forced to fly to. International fifth freedom rights have been given away without normal compensation for the national carrier.

International routes from Kathmandu are now dominated by foreign airlines. Even loyal Nepali passengers are switching to other airlines rather than risk delays. The two Boeing 757s are getting old and need expensive maintenance but procurement of spares is made worse by stiff import tariffs. On domestic routes, some of the de Havilland Twin Otters are more than 30 years old and there is an urgent need to replace equipment and augment capacity.

Kathmandu is unsuitable for long-range flights because of the runway length and altitude. Noise pollution and poor visibility caused by urban haze are becoming major problems. There is an urgent need to plan now for an alternative international airport.

The airline also has a broader social service function on domestic routes where community development and national inclusion can only be fostered by access. The creation of these transport links are not a cost, but an investment. Since they are not yet profitable, they must be subsidised. This can't come from the over-burdened Nepali tax payer but it can be cross-subsidised by viable domestic and international routes.

The remedy, some believe, lies in leasing aircraft to give Royal Nepal Airlines capacity and reliability again and to use the time of the lease to develop a workable longterm operating plan. Leasing has merits but must be planned with care.

The plan ought to be to force reform, with the objective of selling ownership to the public within five years. This would entail some progressive recapitalisation to allow the airline to replace domestic and international fleets with a five-year rolling corporate plan measured by impartial assessors.

Recapitalisation would be conditional upon acceptance of change by owners and employees. The board of directors must be replaced by a management board, made up of airline management, staff representation and outside expertise with significant discretionary powers for making business decisions without reference to the government. Right-sizing management and the workforce with new service terms and conditions must be directed to achieve three key reforms:

. Real productivity, with performance assessment against quantitative targets based on an annual business plan monitored independently
. Performance based remuneration with profit sharing incentives as a high proportion of salary packages. Failure to meet agreed performance targets excludes an employee from profit share
. Greater flexibility in hiring and release of personnel, with proper checks against arbitrariness and prejudice

Initial recapitalisation can be achieved by government guarantees for lease purchase of new aircraft. The guarantee would be conditional on the airline submitting a detailed five-year rolling corporate plan which fully analyses markets, identifies target segments, the demand in them, sets out its market and operating strategies, declares intentions for restructuring and its operating practices, and presents financial forecasts that support and justify business choices. It will also establish that the airline will be attractive to private investors at the end of the restructuring period.

The corporate plan would also have a detailed timeline for implementation of the restructuring with sections on preparatory reform like renegotiating bilateral air agreements, fifth freedom rights and traffic compensation through viable reciprocation. Nepali airlines, including Royal Nepal, must be given room to grow, rather than allowing foreign airlines to grow at our expense.

Capt Kul B Limbu is president of the Nepal Airline Pilots' Association (NAPA) which celebrated its 14th anniversary on 10 August. kulkunga@ccsl.com