Necon Begins Consolidation

Trying to reverse the negative trend in its operating results and to remain in the number one position, Necon Air Limited is reportedly merging with two smaller players in the country's civil aviation market. However, the developments seem to be for neither a merger nor acquisition, but only an alliance.

In a deal, the details of which are not made public as yet, Necon, the country's oldest surviving private sector airline that just observed its 10th anniversary on September 14, is learnt to be trying for an alliance with Shangri-la Air, though the deal is not yet finalised. Meanwhile, Karnali Air's Executive Chairman Capt. Narayan Singh Pun has assumed the position of Necon Air's Executive Chairman and Managing Director. And that was taken by the people to mean merger of Pun's helicopter company into Necon.

However, as it turned out from our inquiry with sources close to Necon and Sangrila-la, it is simply a disparate step by Necon management distressed at mounting losses and fast eroding market standing and pressure from the lender. Pun bought substantial portion of promoters shares in Necon (paying Rs. 40 million, according to one source, but it is not known for how many shares), thus rightfully claiming the Chairman's seat, and by logic the seller of those shares is Deep Mani Rajbhandari who immediately vacated Necon Chairman's the seat in favour of Pun. However, Shangrila Air as well as Pun's Karnali Air will remain independent companies, though there are talks going on to form a marketing alliance among the three. If such alliance happens, the Group will still remain the largest airline group in the country with a combined fleet size of 14 and employees number 680.

The reason that triggered the development was a bank loan on which Necon was defaulting. According to one information, Nabil Ltd. is pressing Rajbhandari to pay Rs. 60 million which is already overdue and for which Rajbhandari has pledged his personal property. Though this could not be confirmed as both Rajbhandari and Pun were not available, Necon's latest annual report (for the year that ended on July 15, 2000) shows that the company's loans had increased, though not substantially, between 1998-99 and 1999-2000. That means, the company was swapping loans - paying one lender by borrowing from the other. As that strategy was overstretched, thus causing Nabil press for immediate repayment, Rajbhandari tried with Nepal Bangladesh Bank for rescue, but failed.

Pun's Karnali Air is in holicopter service with six VZ, Ecureuil and VK choppers, while Shangri-la flies three twin otters and two Beechcraft. Necon flies two ATR-42 and is planning to add a third one this year. As informed in the recently concluded AGM of the company, it is also planning to add one Boeing 737 for international services. Necon is the only Nepali private sector airline that is actually flying across the border - though at present to India only.

Necon's business had started a decline since 1999/2000 when it carried 262,757 passengers (14.6% down from 307,746 in 1998/99). That was also reflected in its gross revenue which declined about 14% in 1999/2000 over the figure of 1998/99. And for the first time in five years, the company went into the red with a net loss of Rs. 59.4 millions.

Once the leader in domestic airline sector, Necon lost its position particularly after its Avro aircraft crashed in the beginning of fiscal year 1999/2000 killing all the people on board. The negative effect of that crash pulled the occupancy in Necon craft down, though it introduced first ATR-42 craft in January 2000 and second one in January 2001.

However, the troubles for the company were already there even before that, as the financial report shows. It was already in an operating loss of Rs. 31.7 million in 1998/99 which increased to Rs. 79.46 million in 1999/2000. To save costs, it reduced employee number to 427 in 1999/2000 and to 350 now but was not enough.

To finance the fleet transformation as needed after the 1999 crash the company is to double its capital by issuing additional shares and right shares. With the proposed merger (or alliance if it is actually so), the company will have access to six aircraft of Shangri-la and six helicopters of Karnali and these becoming able to serve all the regions within the country. Thus it is likely to trigger similar arrangements among the rest of the airlines, it is expected.

Now the expectation in the market is for similar developments in consolidation among insurance and finance companies where the proliferation of players is felt to be a drag on quality improvement. With Rajbhandari now concentrating in Neco Insurance (which had a strong aviation portfolio in the past and is now losing the business to later entrants), the expectation for insurance companies to follow into Necon Air's footsteps may not be far-fetched.

Necon's Performance Trend

Source: Company's Annual Reports

Present Strength of New Alliance

Corporate Movements

Bikash Chandra Bose has joined the newly operational LIC (Nepal) Ltd. as its Managing Director. An MA in Economic and MBA in Marketing Management, Bose also holds an LLB. Before joining LIC/N, he was Executive Director (in-charge of Personnel & Industrial Relation) corporate office of LIC (India) that holds 55% of shares in LIC/N. He was also a visiting faculty in National Insurance Academy (Pune).

Kamalji Sahay has joined LIC (Nepal) Ltd. as its General Manager. Before joining LICN he was Senior Divisional Manager in Life Insurance Corporation Of India, Lucknow, which is one of the largest divisions of the life insurance of monolith in India. Sahay has been a visiting professor of the Indian Institute of Management, Lucknow and to several other management and training institutes. He possesses twenty four years of experience of managing life insurance sales and service in metros as well as other urban centers in Northern India.

Manoj Loya who was working in Chaudhary Group for about three years as the General Manager (Sales & Marketing )and had left the company three months ago has rejoined the company in the same position.

Narayan Singh Pun has become the Chairman and Managing Director of Necon Air Ltd. after the company decided to buy all the shares of the Sangrilla Air. Before, Deepmani Rajbhandary was as the chairman and MD of the company after late Anup SJB Rana had resigned the company in February 1999. Similarly, Gopalman Singh Rajbanshi has replaced B. K. Bista, the Country Manager of NAL. Rajbanshi was with Natraj Tours and Travels Pvt Ltd.as Tour Manager for more than 20 years. Bista who was with NAL since its inception is said to have joined Skyline Airways as the Country Director. Radhes Panta, Advisor of NAL has also resigned from the post who was in the company for about three years.

Bhusan Dahal has left Dibyadristi International Pvt. Ltd. as its Executive Director who was with the company for about one and a half year. He is starting a political programme in the Channel Nepal for which he has already bought time in Rs. 30,000/- per episode (45 minute). The anchor of the programme is said to be Vijay Kumar Pandey editor of Nepal, a fortnightly magazine.

Ashish Bista of Gorkha Brewery has been promoted to Senior Brand Manager. It is 3rd year that Bista started working in the company as a Brand Manager. Now his duty assignment has also been added to look after the corporate communication of the company.

Devraj K. C. has joined Chaudhary Group as Senior Manager (sales). K. C. was working in Parle Agro Ltd. Mumbai as Regional Manager, East India since four years.

Rakesh Mohan has joined United Insurance Co. (Nepal) Ltd. as its Chief Executive Officer. Earlier, he was Senior Divisional Manager in New India Assurance Co. Ltd. at Mumbai of India.

Sanjiv Puri has joined Surya Tobacco Company (P) Ltd. (STC) as its new President and Managing Director replacing TV Ramaswamy who returns to ITC Ltd., India (the parent company of STC) upon his completion of tenure here. Puri is a B.Tech from IIT, Kanpur and has been associated with ITC Ltd. for about last 16 years. His last assignment was as the Head of E-commerce for ITC and was based in Kolkata. Other major areas of his work experience include manufacturing and supply chain management.