Nepal Airlines Financial Crisis Deepens With Rs 55.78 Billion Debt Burden

Nepal Airlines Corporation (NAC), Nepal’s state-owned national flag carrier that has been mired in many cases of corruption in the past, has crossed a debt milestone that financial analysts describe as the point of no recoverable return without structural state intervention: its outstanding loans reached Rs 55.78 billion by the end of the last fiscal year — an increase of Rs 19 billion over the past decade — as revealed in the 63rd Annual Report of the Office of the Auditor General (OAG), published in May 2026. My Republica’s reporting on the OAG findings confirms the corporation now owes Rs 31.33 billion to the Employees Provident Fund (EPF) and more than Rs 21.12 billion to the Citizen Investment Trust (CIT) — both institutions managing the long-term retirement savings of millions of Nepali workers across the government, public enterprise, and private sectors.

The OAG has formally instructed NAC to prepare an annual repayment calendar to clear these dues, a directive that carries no enforcement mechanism beyond political will that has historically proven insufficient to compel action. The debt figures alone do not fully capture the severity of the crisis — the structural ratios beneath them do. Online Patrika’s November 2025 analysis of the government-commissioned Sinha committee report confirmed that NAC’s current ratio — the measure of its ability to meet short-term obligations with current assets — stands at just 0.60, meaning its current assets cover only 60 percent of its short-term liabilities.

More critically, the debt-to-equity ratio has reached negative 12.33, a figure that means NAC’s paid-up capital has turned fully negative and its liabilities now dwarf its assets by a factor that makes conventional financial recovery impossible without either a substantial equity infusion from the government or a restructuring of the debt instruments themselves. Nepal News English’s January 2026 deep analysis of the corporation delivered the most damning arithmetic: even if NAC generated an annual profit of Rs 5 billion, it would take more than ten years to repay its current debt load at that pace.

Retirement Savings of Millions of Nepalese Now at Risk

The mechanism by which NAC’s debt became a crisis of public savings rather than merely a corporate balance sheet problem traces to a procurement decision made in 2013. Rising Nepal Daily’s reporting on the 63rd OAG report confirms that NAC took a loan of Rs 22 billion from the EPF and Rs 12 billion from the CIT to purchase Airbus A320 narrow-body and Airbus A330 wide-body aircraft — agreements executed under government guarantees, which transferred the ultimate repayment obligation to the Nepali state if NAC defaulted.

The narrow-body EPF loan of Rs 10 billion, signed in 2013, has been serviced for more than a decade; Clickmandu’s July 2025 investigation calculated that NAC has already repaid Rs 10.93 billion toward the narrow-body aircraft alone. Despite this, the carrier still owes over Rs 10.21 billion due to accumulated interest.

The wide-body loan is the catastrophic core of the debt structure. Clickmandu confirmed that NAC borrowed Rs 12 billion each from the EPF and CIT at 9 percent annual interest in May 2017 to acquire two Airbus A330s, and that this debt has since ballooned to Rs 42 billion — more than three times the original principal — through compound interest accrued during periods of non-payment.

NAC has repaid only Rs 9.93 billion of the wide-body aircraft loans in total, with Rs 4.91 billion to EPF and Rs 5.01 billion to CIT. The Kathmandu Post’s November 2025 investigation warned directly that without immediate corrective measures, “the situation may worsen to a point where Nepal’s two largest public saving institutions — custodians of vital retirement funds — could be adversely affected.” The report used language ordinarily reserved for systemic risk — noting that an erosion of public confidence in EPF and CIT would follow if the government failed to intervene.

Rs 6.66 billion Lost in NAC’s Chinese Aircraft Failure

Parallel to the Airbus debt crisis, NAC carries the dead weight of an entirely separate procurement catastrophe — the government-to-government purchase of six Chinese-made aircraft between 2014 and 2018. Nepal News English’s definitive explainer on the Chinese aircraft debacle documents that in November 2012, the Cabinet approved a G2G agreement with China’s state-owned Aviation Industry Corporation of China (AVIC), committing to six aircraft — two 56-seater MA60s manufactured by Xi’an Aircraft Industrial Corporation and four 17-seater Y12Es manufactured by Harbin Aircraft Industry Group, both AVIC subsidiaries.

China provided one MA60 and one Y12E as grants worth Rs 2.94 billion; the remaining four aircraft were financed through a Chinese EXIM Bank soft loan of Rs 3.72 billion at 1.5 percent annual interest over 20 years, with a five-year grace period. By the time deliveries concluded in February 2018, the total commitment had reached Rs 6.66 billion.

The entire fleet was operationally grounded by August 1, 2020, after the NAC board concluded that flying the Chinese aircraft generated annual losses of approximately Rs 500 million. One Y12E was written off after a runway excursion at Nepalgunj Airport on March 29, 2022. The five-remaining aircraft (three Y12Es and two MA60s) sit at the eastern parking bay of Tribhuvan International Airport (KTM) visibly rusting, with NAC spending Rs 200 million per year on insurance, parking, and minimal maintenance for aircraft that generate zero revenue.

Aviation.Direct confirmed that an American appraisal firm valued all five aircraft at just Rs 220 million — approximately 1.1 percent of their original cost — yet NAC set an internal asking price of USD 19.58 million, finding no buyers in two successive tender processes. As of May 2026, the planes remain parked and deteriorating, with a Pakistani buyer’s reported interest stalled because the G2G framework requires Chinese governmental consent for any disposal.

Nepal Airlines’ 45 Managing Directors and a Nepotism Scandal Still Unresolved

Our comprehensive institutional history of NAC documents a pattern of dual power structures at NAC that generated internal paralysis at every critical decision point in the corporation’s modern history. Nepal News English’s January 2026 analysis noted that the government initiated the search for NAC’s 45th Managing Director through open competition in late 2025. As of the OAG report’s publication, 26 foreign airlines operating international flights from Nepal earned Rs 153 billion in 2024, while NAC — flying in the same regulatory airspace — captured just 11 percent of the international market.

The governance crisis reached an operational nadir in April 2026, just weeks before the OAG report’s release. It has been reported that Captain Subash Rijal, NAC’s Director of Operations, allegedly bypassed 19 qualified pilots who had waited up to six years for training to insert a relative by marriage — contract pilot Roshan Koirala — into a high-cost Airbus A320 type-rating programme at CAE Malaysia.

The investigation further alleged that the standard computer-based A320 type-rating examination was switched to a paper-based format, administered by a non-type-rated pilot, with Koirala receiving a perfect score of 100 percent — a result no expert panel independently verified. The Ministry of Culture, Tourism and Civil Aviation intervened after media exposure; NAC Executive Director Amritman Shrestha summoned Rijal, and Koirala’s name was removed from the Malaysia training manifest. No formal disciplinary action against Rijal had been publicly confirmed as of the date of the OAG report.

How Nepal Ignored South Asia’s Airline Recovery Playbook

Air India, long considered South Asia’s most spectacular state airline failure, accumulated losses of approximately USD 10 billion over two decades before the Indian government divested it to the Tata Group in January 2022 in a transaction that included assumption of Rs 15,300 crore in debt — a privatisation that has since produced measurable improvements in on-time performance, customer satisfaction, and fleet investment.

Pakistan International Airlines (PK) presents the cautionary mirror image: the Pakistani government has repeatedly attempted restructuring without privatisation, with PIA’s accumulated losses exceeding PKR 800 billion as of 2025 and its operating licence temporarily suspended by the European Union Aviation Safety Agency in 2020 over safety concerns.

Nepal News English’s January 2026 crisis analysis quoted the November 2025 Sinha committee report’s conclusion directly: the corporation “can be rebuilt if essential reforms are adopted” — but defined those reforms as ending political interference in management appointments, converting the EPF and CIT debt into equity (which would transfer ownership stakes to the two pension funds), and establishing a professional board insulated from ministerial direction.

The South Asia Monitor’s contemporaneous analysis of the Chinese aircraft grounding decision quoted NAC board member Achyut Pahari as identifying the aircraft’s original procurement as driven by “greed for commissions” and “a fabricated report” — and as of May 2026, not a single official involved in either the Chinese aircraft deal or the Airbus procurement has faced criminal prosecution, a record of impunity that the Commission for the Investigation of Abuse of Authority (CIAA) has declined to disturb citing the G2G framework’s diplomatic sensitivity.

OAG’s Instruction and the Repayment Calendar Nobody Expects

The OAG’s instruction to NAC to prepare an annual repayment calendar is not the first time Nepal’s supreme audit institution has directed the corporation to organise its debt obligations. The OAG has flagged NAC’s financial condition across multiple consecutive annual reports, each time producing a formal instruction and no structural change.

Nepal Airlines’ own press release on its July 2024 loan payment to EPF and CIT — a single combined payment of Rs 1.35 billion — was presented as evidence of the corporation’s financial recovery, yet New Business Age’s contemporaneous reporting confirmed the payment had been delinquent for one and a half years and that the NAC had only managed it after a period of improved flight occupancy rates, not from any structural revenue improvement. Immediately after that payment, NAC failed to pay its next scheduled installment to EPF by the July 2024 deadline, reverting to the pattern within a single quarter.

The mathematical reality that the Sinha committee calculated — that even Rs 5 billion in annual profit would take a decade to repay the current debt — frames the OAG instruction as an accounting exercise rather than a recovery plan. NAC’s annual interest burden on its aircraft loans alone now exceeds Rs 3.5 billion per year, meaning the corporation must first generate sufficient revenue to service interest before a single rupee of principal can be reduced.

Nepal News English’s explainer on the widebody corruption scandal described the debt as having “turned into a nightmare” for the millions of Nepali workers whose savings in EPF and CIT now finance an airline that cannot profitably compete in its own airspace — a fiscal transfer from the pension savings of ordinary citizens to the operating costs of a corporation systematically looted by a political class that has never faced accountability.