Airbus A330 widebody: The Biggest Airline scam in Nepal

Widebody aircraft have revolutionized the field of air travel. Widebodies fall in the list of the biggest commercial aircraft ever made such as the Airbus A380, among others. The widebody Airbus A350-900 is also deployed to operate on the longest one-stop flight that spans more than 10,000 nautical miles, while the Airbus A350-900 ULR is operated on the longest non-stop flight in the world.

But when one tiny nation called Nepal wanted to acquire the widebody that is Airbus A330, it raised a lot of eyebrows. The nation’s iconic Lukla Airport had already garnered infamy as the world’s scariest airport. Its newly constructed international airports such as Pokhara had seen virtually no flights, leading many people to wonder if the airport was just a case of China’s debt trap. The nation  had already been barred from operating flights to the European Union for quite a long time when the news about the purchase of a new Airbus A330 (under the pretext of operating to Europe and Australia) surfaced.

Much later, it was found that the procurement of the two wide-body Airbus aircraft had led to a loss of Rs1.47 billion ($13.38 million) for the Nepalese government. But how did the scandal unfold? Let’s find out.

The main man behind Nepal’s biggest aircraft-purchase scandal 

On 28th May 2015, the Nepali cabinet led by Sushil Koirala appointed Sugat Ratna Kansakar as the managing director of Nepal Airlines. Kansakar had previously been jailed for corruption, specifically related to narrowbody aircraft purchases around five years ago, with the Nepali newspaper My Republica reporting:

“Concluding that Kansakar and five others officials embezzled Rs 57.3 million by sending non-refundable money to the Airbus company flouting Public Procurement Act, the CIAA had filed a case against them at the Special Court on December 25. Except for Kansakar, four other NAC officials had presented themselves before the court as summoned. The court had sought Rs 1.5 million bail each from two officials and Rs 500,000 each from three others. Three NAC officials deposited bail of Rs 500,000 each.”

Sugat’s reappointment as the MD despite such a record raised many questions and sparked protests, yet he became the managing director of Nepal Airlines regardless.

Many felt that a power struggle was already underway. Within six months of his appointment, Sushil Koirala’s government collapsed, and KP Oli became the Prime Minister of Nepal. Sugat Ratna Kansakar was appointed by the Nepali Congress, and typically, all appointees are expected to resign when a government falls.

However, Sugat Ratna Kansakar was not one to resign easily. Whether due to his competency, loyalty, or prior knowledge of plans, he remained in his position, with KP Oli supporting his continued tenure.

Was the government complicit in the widebody scam in Nepal?  

On 1st January 2016, just seven months after Sugat became MD and 2.5 months after KP Oli became Prime Minister, Nepal Airlines, which was suffering from losses, approved a plan to purchase two wide-body aircraft. Protests arose against Sugat, questioning why the airline would buy wide-body aircraft while already facing financial difficulties and a lack of funds.

Sugat Ratna Kansakar justified the purchase by stating it would enable direct flights to Australia and Europe. However, the European Union had barred all Nepal Airlines from operating in Europe. Despite this ban, Sugat Ratna Kansakar dreamed of operating direct flights to London, which many considered impossible. The government also supported this plan during the time when Bishnu Poudel was the finance minister.

In the budget speech of the following year, there was mention of purchasing two more wide-body aircraft. A few days later, the process of purchasing the wide-body aircraft began. In this process, there was no mention of new or old aircraft; it only specified that the aircraft should not have flown more than 1,000 flight hours. Nobody knew why this clause was included in the process.

No direct deal from Airbus  

Nepal Airlines didn’t buy the aircraft from the Airbus directly. Instead, they went ahead with an organization that had been formed from a coalition of the following three companies: 

• AAR corp form USA,
• German Aviation Capital from Germany 
• Hi Fly Aeros from portugal.

With such decisions, Nepal Airlines, the Ministry of Culture, Tourism and Civil Aviation, and the Nepal government were all questioned during the process.

As mentioned, Kansakar was jailed for issues related to the purchase of narrow-body aircraft. Under his leadership, Nepal Airlines had directly purchased planes from Airbus. However, allegations were made during the procurement process, accusing Kansakar of involvement in corrupt practices. Consequently, Airbus did not want to get involved in this controversy again and preferred to sell planes through a third party.

That’s why they insisted on including the clause “the aircraft should have flown no more than a thousand hours” as Airbus only sold new aircraft. Airbus and Kansakar had a good relationship during the purchase of narrow-body aircraft, but this time, Airbus did not want to be directly involved; they preferred to sell their planes through a third-party company.

The three companies from which Nepal Airlines planned to purchase wide-body aircraft are indirectly associated with Airbus. Let’s take a look the three companies:

German Aviation Capital from Germany 

Victor Topa, the founder of German Aviation Capital, was one of the key individuals involved in the wide-body aircraft purchase case. While the process was ongoing, this company made a deal for nine aircraft with AL Naser Airlines, which was banned by the United States, as mentioned in documents from a French court.

The French court orders issued in 2020 noted that an Airbus employee sent an email to German Aviation Capital related to the purchase case, indicating a connection between Airbus and German Aviation Capital.

Hi Fly Aeros

It is a major wide-body aircraft leasing company in the world, meaning they provide aircraft on lease along with at least one pilot. The owner of the company is Paulo Mirpuri, a wealthy businessman from Portugal. He has a non-profit organization involved in maritime conservation and has been associated with an extremist party in Portugal.

His company was responsible for repatriating immigrants in the United Kingdom after receiving a contract from the UK Home Ministry, which raised criticism against him. During the negotiations for the aircraft purchase agreement in Nepal, Mirpuri was trekking at the Sagarmatha Base Camp.

AAR corp

In July 2019, AAR Corp filed a complaint with the U.S. Department of Justice and the Securities and Exchange Commission, alleging serious fraud in the UK and violations of U.S. anti-corruption laws by its employees involved in business dealings in Nepal. Investigations are currently underway regarding these matters.

Deepak Sharma, a British citizen of Nepali origin, is a key figure in AAR Corp; he signed the international supply chain agreement on behalf of the company with Nepal Airlines. Three controversial companies were chosen, but Nepal Airlines needed money to buy the aircraft.

Managing budget 

Nepal Airlines was already facing financial losses, which necessitated a loan of 24 billion rupees. They sought loans from the Employee Provident Fund (EPF) and Citizens Investment Trust (CIT), both large financial institutions in Nepal. However, due to the substantial loan amount, Nepal Airlines’ financially weak position, and the controversial managing director, both EPF and CIT hesitated to provide the loan. As a result, the process was delayed due to a lack of funds.

In August 2016, when Pushpa Kamal Dahal became Prime Minister, the government was led by the Communist Party. Even after the change of government, no one dared to remove Sugat Ratna Kansakar. Following the government transition, the work behind the wide-body purchase began to gain momentum. The government pressured EPF and CIT to provide loans for this project and decided to secure a loan of 24 billion Nepalese rupees from both funds.

Both funds offered loans significantly higher than the purchase price, amounting to 1 billion 90 million Nepalese rupees more. Now, it was necessary to bring in the aircraft.

Where did the funds go?

For this purpose, business dealings were observed to be carried out from offshore countries. The three companies selected to buy the aircraft instructed Nepal Airlines to establish a shell company named Highfly X in Ireland on February 24, 2017, with a total capital of only $1. A shell company refers to a company that exists only on paper and lacks a physical presence.

Highfly X presented a bill of approximately 21.53 million to Nepal Airlines, as Highfly X was supposed to provide the aircraft. For the transaction, they created an escrow account, which is a type of account involving the buyer, seller, and a third party. The third party holds the money until the deal is completed, after which the funds are released to the buyer.

This amount was transferred to Norton Rose Fulbright, a company based in Munich, Germany, as the escrow account. However, it remains unclear which party received the payment after the agreement, and this information has not been revealed so far. When the CIJ examined the company’s transactions and financial statements, it was found that the funds were not transferred to Highfly X’s account.

Although a bill was issued by Highfly X, the company did not receive the money, raising questions about where the funds went.

Buying an 8 year old aircraft at the same launched price?

According to the Public Procurement Act in Nepal, any government entity must conduct market surveys and price collection before purchasing goods. In 2016, the airline based its calculations on an eight-year-old value, considering a 2.77% annual increase.

Airbus reduced the price of its wide-body planes after launching a new series, but Nepal Airlines was using an inflation rate of 2.77% based on 2008 prices. It is well known that when a new series is launched, the prices of older models decrease. However, Sugat Ratna Kansakar and Nepal Airlines were paying the same price as they had eight years prior to the launch date.

The Parliamentary Public Accounts Committee questioned this matter, and he justified it by saying they didn’t know the price of the aircraft, but he surely knew the price. As seen in this interview below,

http://www.youtube.com/watch?v=HtaBKrx3QEk

Sugat, clearly knew the price. Even when they were aware they could buy aircraft at a much cheaper rate, they were either paying an extra sum or pretending to pay more. Initially, they planned to buy aircraft with a maximum takeoff weight of 242 tons, which would have allowed for direct flights to Sydney. However, AAR Corp later sent aircraft weighing 230 tons. Despite the reduction of only 12 tons, the aircraft should have cost 900 million rupees.

Some big names in Nepal’s widebody scandal

According to the Public Accounts Committee’s investigation conducted in 2075, the corporation incurred a loss of over 4 billion rupees during the aircraft purchase. The committee recommended investigating former ministers of Culture, Tourism, and Civil Aviation Jitendra Narayan Dev, Jeevan Bahadur Shahi, and Ravindra Adhikari. Former secretaries of the same ministry, Prem Kumar Rai, Shankar Prasad Adhikari, Krishna Prasad Devkota, and Sugat Ratna Kansakar, were also recommended for investigation. One of the alleged individuals, Prem Kumar Rai, is on the Commission of Investigation on Abuse of Authority (CIAA). 

The aircraft arrived, incurring losses

When the two aircraft arrived in Nepal, it created a festive atmosphere with the mechanical birds receiving a water cannon salute. However, there have been no expected benefits for the airlines. From the beginning, they have been irregular in paying installments to the EPF and CIT. In 2023, the corporation owed a total of 31.40 billion rupees, including penalties and other charges, to these funds. The total assets of the airline are negative, amounting to -1.80 billion rupees. Even if Nepal Airlines were to sell all its remaining assets today, it would not be sufficient to repay the debts.

Investigation and the sentences meted out

Here are a few Nepalese who were given sentences, as reported by the Kathmandu Post:

Name of the people	Imprisonment sentence	Recovery ordered
Sugat Ratna Kansakar	Two years nine months (reduced to half due to  being a senior citizen)	Rs122.59 million
Shankar Adhikari (former tourism secretary)	One year nine months	Rs 122.59 million
former finance secretary Shishir Kumar Dhungana	One year six months	Rs 122.59 million
Buddhi Sagar Lamichhane (tourism joint secretary )	One year six months	Rs 122.59 million

The newspaper also reported the sentences meted out to other parties in the scam:

“The court has also sentenced former AAR executive Sharma; Christian Nuehlen, a German citizen and former director of Hi Fly X Ireland Limited, Dublin; and Oleg Calistru, a citizen of Romania and Moldova and former finance director of German Aviation Capital; to a year and six months in prison and asked them to forfeit Rs122.59 million each. Similarly, the court has sentenced John M Holmes, president and chief executive officer of AAR International; Ana Topa, managing director of German Aviation Capital; Paulo Mirpuri, president of Hi Fly Airlines Portugal; and Gerald Thornton, director of Hifly X Ireland Limited a year and six months in prison and asked them to forfeit Rs122.59 million each.”