In a major move that will see its domestic fleet enlarged, Nepal Airlines Corporation (NAC) on Thursday signed a commercial agreement with AVIC International Holdings , a Chinese government undertaking, to procure six aircraft.

China had pledged to provide a 19-seater Harbin Y-12e and a 58-seater MA60 turboprop in grant and four other aircraft—three Harbin Y-12e and one MA60—on soft loans.

Ranjan Krishna Aryal, the NAC board member and also the joint-secretary at the Ministry of Culture, Tourism and Civil Aviation, Raju Bahadur KC, the NAC’s acting managing director, Yang Kum Wang, AVIC’s Asia Director and Song Xiaoning, the general representative and programme manager, Nepal, signed the agreement on behalf of their respective organisations.

“The agreement will now open the door for the aircraft procurement process, ending a drought of almost 25 years,” said Tourism Ministry Secretary Yajna Prasad Gautam. The government had on Sunday decided to purchase aircraft from the AVIC International. The government will now look to ink three more deals—soft loan agreement with China’s EXIM Bank to be signed by the Finance Ministry, airworthiness agreement between the Civil Aviation Authorities of the two countries and the government-to-government agreement.

NAC will receive two aircraft in grant within two months of the finalisation of the loan agreement, and the rest after five months of the first delivery, according to government officials.

Aryal said they have not yet finalised the cost of the proposed aircraft. However, four aircraft—three Y-12e and a 58-seater MA60—are estimated to cost $35 million for a combined package that includes spare parts and pilot training, among other things. “The cost will be finalised during the loan agreement,” Aryal said.

China has responded positively to the proposal of the Nepali side to provide a five-year grace period for the loan and interest repayment. “If the proposal is approved, it will enable NAC to enjoy earnings for at least five years,” Gautam said. Similarly, the interest rate on the loan is expected to be below 1.75 percent per annum. The Nepali side has also proposed a 30-year payback period for the loans. On August 7, 2011, NAC had written to the Finance Ministry, requesting it to purchase eight aircraft in foreign grants.

In November 2011, the ministry requested China to provide the aircraft either in grant or on concessional loans. The Chinese side responded positively, expressing their readiness to provide some aircraft in grant and some under soft loans.

An NAC technical team, following its inspection visit to China, reported that the airplanes were fit for Nepali skies. Subsequently in December 2011, the Chinese government formally informed the Finance Ministry that three aircraft would be provided to the NAC in grant and the others on soft loans.

However, the process landed in controversy, with the Commission for Investigation of Abuse of Authority being called to probe alleged irregularities. The government revived the plan on October 17, 2012, under its Immediate Governance and Economy Reform Action Plan 2012.

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