The state of Royal Nepal Airlines always indicates the state of the country. And Nepal's condition is reflected in the state of Royal Nepal. At present both are in a sorry state.

Royal Nepal has one of the region's best trained and experienced pilots, engineers and managers. In its nearly 45-year history, the airline has grown from a small domestic airline into an international carrier. And for a brief period in the 1980s Royal Nepal enjoyed a reputation in the region for reliability and courteous in-flight service. Today, staff are demoralised and disgusted with the politicians who have interfered and bled the airline dry. Many we spoke to did not want to be identified, but their anger spilled over. "We're going through the worst times in our history," one employee, with the airline for 30 years now, said. "We would have been a very viable corporation, if only the politicians had not been so greedy and vision-less."

It's not that there wasn't interference and corruption before 1990. Large and murky kickbacks allegedly accompanied the purchase of the 757s in 1987. But it was after democracy that corruption in Royal Nepal also got democratised. For proof, just look at the turnover in top management (see box). There is a new executive chairman or managing director with every change of government. In a country where opportunities for large kickbacks are confined to infrastructure or airline, it is not surprising that successive politicians have treated the airline like a cash cow on jet leases, equipment purchases and maintenance contracts. And when political appointees with vested interests plunder the airline openly, staff right down the line just took the cue.

The real irony is that the airline is going bankrupt at a time when it had paid up on the loans that financed the 757 purchases, and for the first time in a decade it was hoping to earn Rs 12.9 million in 1999-2000. The airline was getting ready for take-off, to expand its fleet with the purchase of a much-needed widebody jet for long-haul destinations and to upgrade the ageing domestic fleet of Twin Otters.

But things did not quite work out that way. In late October the corporation's top brass decided to lease its 18th aircraft. Royal Nepal Airlines had started being derisively called a "Rent-a-Jet" operator because it has hired every make of jet from just about everybody: Hapag Llyod, Yugoslav Airlines, Turkmenistan Airways, China Southwest, and last but not least, Lauda Air. Every one of the leases has been dogged with controversy over kickbacks: under the table payments to decision-makers calculated on the basis of hours flown. There are few in the ministries since 1994 and in the airline's senior management who are unsullied. Some flight crew in Royal Nepal have become so cynical that they say they don't really care anymore if there is corruption. "If they're going to get kickbacks anyway, then the next best thing is to ensure that they lease jets that are suitable for us, and on terms that would make optimum use of our own 757 pilots," said one frustrated captain.

It was perhaps inevitable that with all the interference from ruling party politicians, a jet lease would sooner or later turn into a political scandal. The Lauda Air deal is theoretically one of the better ones the airline has undertaken. On paper, the 767 would have been ideal if Nepali 757 crew were allowed to fly it. The biggest absurdity is that the airline pushes its narrow-body medium-range 757s on long-haul routes like Kansai and Gatwick, while letting the wide-body 767 do Delhi and Bangkok. Royal Nepal management privately blame this on crew lobbying: they are reluctant to forego allowances during long layovers in Frankfurt, Dubai and Osaka. Little wonder, then, that even if a Royal Nepal 757 flies full capacity roundtrip Kathmandu-Gatwick and back, the airline still loses money on that sector.

When the Lauda lease was signed, most major travel agencies and hotels in Kathmandu put out large ads in the media congratulating Royal Nepal Airlines for taking the "bold step". Little did they know that the lease would turn sour, and be used by the parliament's powerful Public Accounts Committee under UML graft-buster Subhas Chandra Nemwang to gun for the prime minister's head. The Commission for Investigation of the Abuse of Authority (CIAA) is still investigating the deal, but insiders say there is no real proof of wrongdoing besides a letter from the cabinet allowing the foreign currency advance for the Lauda lease to be released.

Fleet-wise, Royal Nepal has also never been better placed. With three 757s and a 767 it could easily make its flights more reliable and increase frequencies on real money-spinning routes like Delhi, Bombay, Bangkok and Hong Kong. It could take the pragmatic decision to be a hub-and-spoke airline specialising in ferrying passengers from regional airports like Singapore, Hong Kong, Dubai and Delhi through code-sharing tie-ups with large international airlines. It could scrap its over-extended and under-marketed European routes.

Royal Nepal is haemorrhaging Rs 100 million a month just on the Lauda 767. "If we retain both leased aircraft during the low summer season, we'll get deeper into the hole from which we may never emerge," says a senior staffer at Royal Nepal's finance department. But the airline is trapped, it can't cancel the lease agreements without big penalties. Says the official: "I don't think anyone knows how to stop this. I doubt if anyone even wants to."

Royal Nepal has always been a source of slush funds for politicians. Where politicians have remained aloof, their relatives have walked away with the money. Aside from kickbacks, airline sources allege large-scale corruption was involved in the questionable decision to phase out the airline's fully depreciated 727s in the early 1990s. One of the jets was stripped down to the last bolt and sold as scrap. After that the airline had two 757s to service routes flown by four jets. Since then, it has been one hired jet after another for durations varying from 18 months to even 15 days. By now, airline sources say, Royal Nepal has spent $111 million just in hiring planes. It could have bought two brand new 757s with that money.

After outright purchase, aircraft leasing tops the list as a kickback source, and decisions are taken by politicians. Says a former corporate director of Royal Nepal: "The commission that comes while leasing aircraft is an easy take for politicians." He told us the going rate varies between US$100-400 per flight hour. By a rough calculation this means various politicians and bosses at Royal Nepal have pocketed some $5.2 million in the past seven years in just kickbacks. Politicians are usually hand-in-glove with airline's top managers who are political appointees, airline insiders told us.

The other lucrative place to be is the engineering department. Engine overhaul is the biggest item, each RB-211 engine of a 757 costs $1.5 million to service after a specified number of flying hours. The planes themselves need to be stripped down and serviced in C-checks and D-checks every couple of years. Spares are bought without transparent bidding. Deals worth millions are finalised by a privileged few, top officials and their political masters. Money is also made in printing airline tickets, purchase of motor vehicles and huge aviation fuel contracts at stopovers abroad. There is even hanky-panky in food and beverages served on board, a lot of the unused liquor after flights just vanishes. It's not all kickbacks, there is also over-invoicing for shoddy products in in-flight catering. A former managing director who dared to fight graft in the airline in 1995 and brought out a White Paper was fired for his effort. A new chief executive was hired who would ensure the cash flow-not of the airline, but of the politicos who put him there.

If this is the state of international routes, the less said of the domestic the better. Tickets sold in black, passengers wait months in remote airports for flights that never come, and RNAC has earned the appellation: Royal Nepal Always Cancelled. Fortunes are made by ground staff in remote airports by under-invoicing cargo, bribes for hard-to-get tickets, and overloading aircraft. The honest staff, and there are quite a few, suffer from a tarnished reputation and pressure from peers to join in the loot. "It's got to the point where if you don't steal, you are not regarded as a team player and they'll have you transferred," one dejected

station manager confided to us.

We put this to a current senior executive at the airline. His reply: "Every politician is aware that this corporation cannot run this way. Our board tells them this can't go on, but they just keep on doing it." The staff unions are polarised between the Congress and the UML and get active only when their political bosses want them to.

Whenever there is talk about privatising the corporation, the same political interests whip up nationalistic sentiments to ensure that it does not happen, lest they lose their cash cow.

Meanwhile, the airline's international market share has plummeted from about 50 percent in 1994 to 34 percent in 1999, despite having larger seat capacity. Royal Nepal has given up nearly all its money-making domestic routes, including the lucrative mountain flights. "All this is happening when we have so many international airlines coming to Nepal, and I don't think they come here because they love Nepal," says Medini Prasad Sharma, Director General of the Civil Aviation Authority of Nepal. "They come because there

is money to be made flying to Kathmandu."

Next time you feel like cursing Royal Nepal. Maybe you shouldn't. Maybe you should curse the politicians and their appointees who have ruined a perfectly good airline and run it to the ground.