VZCZCXRO2131
PP RUEHCI
DE RUEHKT #0880/01 2660854
ZNR UUUUU ZZH
P 230854Z SEP 09
FM AMEMBASSY KATHMANDU
TO RUEHC/SECSTATE WASHDC PRIORITY 0789
INFO RUEHBJ/AMEMBASSY BEIJING 7135
RUEHBS/AMEMBASSY BRUSSELS 0275
RUEHKA/AMEMBASSY DHAKA 2792
RUEHLO/AMEMBASSY LONDON 6618
RUEHNE/AMEMBASSY NEW DELHI 3244
RUEHFR/AMEMBASSY PARIS 0183
RUEHCI/AMCONSUL KOLKATA 4769
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHHMUNA/HQ USPACOM HONOLULU HI//J2X/J2C/J2D/J2I//

UNCLAS SECTION 01 OF 02 KATHMANDU 000880 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAIR ETRD PREL PTER NP
SUBJECT: NEPAL: BOEING'S BID GETS A BOOST 
 
REF: A. KATHMANDU 840 
     ¶B. KATHMANDU 529 
     ¶C. KATHMANDU 421 
     ¶D. KATHMANDU 202 
 
Summary 
-------- 
¶1. (U)  Boeing's bid to supply a narrow-body aircraft to the 
Nepal Airlines Corporation (NAC) has been given a boost by 
the parliament's Public Accounts Committee, which at a 
September 18 hearing issued a directive to the state-run 
airline that should bring some balance to a decision-making 
process tilted in favor of Airbus.  Spurred by an independent 
analysis that raised serious concerns about NAC's lack of a 
coherent business plan, the Committee ordered the airline to 
develop a detailed plan that addresses its long-term needs. 
Boeing has been urging NAC to do the same thing in the belief 
that from a long-range perspective its offer makes more 
financial sense. 
 
Two Aircraft Sought, Only One Approved 
-------------------------------------- 
¶2. (U)  As part of an effort to boost its international 
business, NAC earlier this year issued a request for 
proposals to supply one narrow-body and one wide-body 
aircraft.  Five companies submitted proposals, but NAC 
decided to eliminate third-party suppliers, leaving Boeing 
and Airbus to compete for the sales.  However, unlike Airbus, 
Boeing declined to bid on the wide-body aircraft because it 
believed such a purchase by NAC would be financially 
imprudent. Boeing's failure to bid on both aircraft caused it 
to fall out of favor with NAC. (Comment. Currently, the only 
long-range aircraft in NAC's fleet are two Boeing B-757s. End 
comment) 
 
¶3. (SBU)  During a September 18 hearing, the Public Accounts 
Committee (PAC) ordered NAC not to move forward with the 
purchase of a wide-body aircraft until it submits a detailed 
the rationale for the purchase.  In making their demand, 
Committee members pointed to a study conducted for the 
state-run airline by the Center for Asia Pacific Aviation 
(CAPA), an aviation market analysis firm, which, like Boeing, 
questioned NAC's claim that it needed the wide-body aircraft 
for long-haul routes to Europe.  CAPA said NAC's plans are 
"not sufficiently clear in outlining the need to launch these 
routes and their viability."  No deadline was set for the NAC 
to submit its business plan. 
 
¶3. (SBU)  PAC member Prakash Chandra Lohani told Emboff that 
the hearing, attended by Minister of Tourism and Civil 
Aviation Sarat Singh Bhandari, NAC Executive Chairman Sagat 
Ratna Kansakar and Managing Director Kul Bahadur Limbu, was 
held in response to numerous recent media reports that the 
purchase of the wide-body aircraft was imminent.  He said the 
findings of the CAPA report added to the Committee's sense of 
urgency.  The lawmaker and former Finance Minister predicted 
that purchasing a wide-body aircraft without first developing 
a proper business plan would prove to be a financial 
"disaster" for NAC. 
 
¶4. (U)  Although the PAC halted the wide-body aircraft 
purchase, it gave the NAC the go-ahead to buy a narrow-body 
aircraft for operation on what the Committee deemed more 
financially feasible regional routes in South and Southeast 
Asia.  Airbus has offered to provide the aircraft at a lower 
price, but Boeing officials maintain their narrow-body 
aircraft would be a better buy when operational costs over 
its life span are taken into account. 
 
Timing of Purchase Also Questioned 
---------------------------------- 
¶5. (U)  PAC members also questioned why NAC was moving ahead 
with the purchase of the aircraft before the long-standing 
power struggle between Executive Chairman Kansakar and 
Managing Director Limbu is resolved.  Limbu, a veteran NAC 
pilot, was appointed managing director in January 2008.  He 
was sacked 11 months later by the new Maoist-led government, 
which replaced him with Kansakar, a move Limbu appealed to 
the Supreme Court. In early June, the top court reinstated 
Limbu as managing director, but, about six weeks later, the 
Cabinet of the newly formed, UML-led government appointed 
Kansakar as NAC executive chairman, transferring all of 
 
KATHMANDU 00000880  002 OF 002 
 
 
Limbu's responsibilities to him.   Limbu asked the Supreme 
Court to stay the Cabinet's decision until it heard his 
appeal. After initially issuing a stay order, the Supreme 
Court lifted the order on August 12, allowing Kansakar to 
reclaim ultimate authority at NAC, at least until the top 
court makes a final ruling on Limbu's appeal. 
 
¶6. (U) Until the question of jurisdiction is resolved, Lohani 
stressed, the NAC Board of Directors will not be able to 
strictly follow its by-laws regarding the procurement of 
aircraft, as it has been ordered to do by the PAC. 
 
NAC Management Criticized 
------------------------- 
¶7. (U)  In its report on NAC's aircraft purchase plan, CAPA 
sharply criticized the state-run airline's management, 
particularly the apparent "naivete" that led it to believe 
that "the acquisition of new aircraft alone will solve all of 
NAC's problems."  The report stressed, "New aircraft are not 
a panacea." 
 
¶8. (U)  During the PAC hearing, lawmakers called for reform 
in NAC management.  Given the current "very poor management," 
Lohani questioned whether the NAC could guarantee proper 
utilization of the Rs. 10 billion (USD 130 million) that the 
Employees' Provident Fund is providing the airline to 
purchase the aircraft. 
 
NAC Urged to Go with Single Company 
----------------------------------- 
¶9. (U)  PAC members urged NAC to purchase new aircraft from a 
single company, either Boeing or Airbus.  They cited the 
possible technical and financial burdens the airline would 
have to bear operating aircraft from different companies, 
which include maintaining distinct training programs and 
separate inventories of spare parts.  NAC maintains a Rs. 
1-billion parts inventory to service its two B-757s, 
according to Lohani.  He requested that the NAC specify in 
its business plan what it intends to do with these aircraft 
and spare parts once new aircraft are purchased. 
 
Comment 
------- 
¶10. (SBU) While Post continues to hear that powerful forces 
in the Government of Nepal are promoting the Airbus 
bid, PAC's action boosts Boeing's efforts to sell a 
narrow-body aircraft to NAC by drawing much-needed 
attention to the airline's long-term needs, which Boeing 
believes are better met by its offer.  The company's 
prospects would be further enhanced if the Supreme Court were 
to rule in favor of Limbu, who is seen by Boeing official as 
one of their few allies within NAC. 
MOON