The Government of Nepal has rescheduled interest payments on debts owed by Nepal Airlines (RA, Kathmandu) to various state-owned institutions as part of the ailing carrier's turnaround strategy.

According to The Kathmandu Post, Finance Minister Yuba Raj Khatiwada admitted during a parliamentary hearing this week that the government was worried about the future of the flag carrier.

Nepal Airlines recently defaulted on two quarterly instalments of NPR1.2 billion rupees (USD11 million) to the Employees Provident Fund and one quarterly instalment of NPR730 million rupees (USD6.6 million) to the Citizens Investment Trust. It also warned that it will likely default on future instalments as well.

Nepal Airlines currently owes NPR40 billion rupees (USD362 million) to various state-owned institutions and has to pay NPR3.7 billion rupees (USD34 million) in annual interest alone.

Khatiwada also said that the government had drafted a turnaround strategy for the struggling flag carrier which includes recapitalisation and a search for a strategic partner.

"We are also considering bringing a strategic partner for the corporation," the minister said.

While Nepal Airlines has had cashflow issues for years, it did not default on the debts. The deterioration in its financial standing accelerated in 2018 when it added two A330-200s. The two widebodies have become both a financial and operational burden to the airline given it does not have enough long-haul routes on which to deploy them. As a result, the jets have remained underutilized and have therefore failed to pay for themselves.

The carrier recently postponed the launch of its new service to Osaka Kansai from July to August 2019, saying that it failed to attract enough bookings during the summer low season.