A new investigation by CIJ Nepal and Finance Uncovered can today reveal the key individuals and opaque offshore structures behind one of the biggest and, arguably, most controversial business deals ever conducted in Nepal. 

Deepak Adhikari And Rudra Pangeni |CIJ, Nepal

We have identified colourful international business figures and companies from Moldova, Portugal and Germany behind offshore companies that sold two Airbus jets to Nepal Airlines in 2017 for $216.38m.

Our investigation questions the procurement process.

It also examines the offshore corporate structures used to acquire the planes from Airbus.

The purchase of two wide bodied Airbus manufactured A330-200 jets for Nepal’s state owned airline was largely financed by loans totalling Rs 24 billion from Citizens Investment Trust (CIT) and Employees Provident Fund – two of Nepal’s biggest pension funds.

But today, about 1.3 million Nepalis who save with CIT and EPF face an uncertain future because, according to a recent auditor general report, the two pension funds have not received regular repayments from Nepal Airlines.

Four years ago, a committee of Nepali parliamentarians concluded that the airline “made a loss” of about $40m during the course of the sale.

The parliamentarians stated that Nepal Airlines should have compared how much it would have cost to buy the planes directly from Airbus compared with using intermediaries to buy the planes.

They claimed that the loss was caused because Nepal Airlines bought the planes through intermediaries instead of buying directly from Airbus.

The committee recommended legal action against two former tourism ministers Jiwan Bahadur Shahi and Jitendra Narayan Dev and a sitting minister Rabindra Adhiakri for allegedly not taking precautionary measures during the procurement process.

It also recommended legal action against two former tourism secretaries, Prem Kumar Rai and Shankar Adhikari, a sitting secretary, Krishna Prasad Devkota and Nepal Airlines’ managing director Sugat Ratna Kansakar over charges of alleged corruption.

The Commission for the Investigation of Abuse of Authority is still investigating the case in Nepal. Their progress has been very slow and no charges have been brought against any individual.

All seven have denied the charges, according to news reports and interviews with them.

Sukhadev Khatri Bhattarai, the retired acting head of the Office of the Auditor General  is not hopeful of any action on Nepal’s various scandals –  including this case. “This is a huge scandal,” said Bhattarai, who is now an anti-corruption campaigner. “I fear that when it comes to the appointment of the key commissioners at the agencies, leaders of political parties may sit together and each of them secure the position with people loyal to them and this could potentially mean corruption charges are avoided.”

Hope takes flight 

When Nepal purchased two widebody planes in 2018, their arrival became a moment of national celebration. The tourism minister, aviation officials and executives from the suppliers gathered on the tarmac of the country’s international airport. They were welcomed by young women dressed in traditional Nepali and ethnic dresses with garlands and flowers. The gleaming planes received a water cannon salute.

Government officials claimed the long haul A330-200 jets would travel non-stop to European and Australian destinations. It was a bold statement as the European Union had banned Nepali airline companies from flying direct to the EU.

Despite this, two state-run pension funds lent US$232 million to Nepal Airlines so it could buy the jets from Airbus. It was the largest ever jet deal in Nepal’s history. The pension funds, along with the country, were hoping the planes would revive the national flag carrier’s sagging fortunes.

In fact, hopes were so high that loans were issued US$15.62m above the jets’ purchase price. It allowed Nepal Airlines additional financial flexibility to invest in its business – in theory.

But a year after the ceremony, the deal became embroiled in corruption allegations in Nepal and also the United States.

First, in early 2019, there was stinging criticism from Nepal’s parliamentary committee.. Then, six months later, in July 2019, AAR Corp, an Illinois headquartered aviation service company, self-reported to the US authorities for violations of the Foreign Corrupt Practices Act in Nepal and South Africa. It is thought that the Nepal “violation”  was in relation to the Nepali jet purchase.

Now, an investigation into the deal by Center for Investigative Journalism, Nepal and Finance Uncovered has analysed documents from a parliamentary committee, financial records of offshore companies, and conducted interviews with former and current government officials as well as industry insiders. This story shines a light on the key players involved with the companies that acted as intermediaries between Airbus and Nepal Airlines.

The procurement 

At the heart of this tortuous deal is a simple fact: Nepal did not buy these planes directly from Airbus. The US$216.38m transaction was seemingly designed so that the French aerospace giant didn’t participate in the bidding process. Instead, a group of companies came to serve as intermediaries to sell the planes to Nepal.

In January 2017, this culminated in Nepal Airlines selecting a consortium of three companies – AAR Corp, German Aviation Capital and Hi Fly Transportes Aereos – to supply two widebody jets to Nepal.

One of those three companies had history with the Nepal government.

In April 2015, German Aviation Capital along with Lufthansa Consulting made a PowerPoint presentation to the Finance Ministry officials in Kathmandu. They proposed to inject fresh capital into Nepal Airlines to revive the troubled national flag carrier.

But the proposal was deferred with no clear reason.

Within a few months, Nepal Airlines started the process to purchase two wide body Airbus planes.

And in January 2017, Nepal Airlines awarded the deal to a consortium of three companies. And one of them was German Aviation Capital.

To Rajendra Prasad Adhikari, a procurement analyst who has authored books on Nepal’s public procurement and contract management, that German Aviation Capital had this level of contact with the finance ministry and then emerged as one of the intermediaries gives serious cause for concern.

“In the given context, it appears that the contract was awarded to a party, which was consulted before,” he told us. “This type of scenario provides grounds for possible collusion, and is considered as unethical.”

Nepal Airlines was given more than three weeks to respond to this article. Despite assurances that it would comment, it failed to do so.

German Aviation Capital did not issue a comment for this article.

So who is German Aviation Capital? 

The owner of the German Aviation Capital in 2017 was Cyprus-registered Frontenex Limited, owned by the wife of Victor Topa, a controversial Moldovan businessman.

Victor Topa, a founder and former chief executive  of German Aviation Capital, appears to be one of the most important people in the jet deal.

GAC has a controversial past. In 2015 – just as Nepal Airlines was embarking on its purchase, GAC sold nine Airbus planes to a US-sanctioned Iranian air company called Al Naser, according to French court documents obtained by CIJ Nepal. The court documents state that Airbus dismissed an unnamed executive for their role in the deal.

According to the 6 November 2020 ruling by the Toulouse court of appeal, the giant European plane manufacturer discovered an email from one of its executives to German Aviation Capital that contained a “file on a study into reconditioning planes for the Iranian market”.

Did the German company have a ‘way in’ to a senior official at Airbus, who may have been prepared to overlook international sanctions rules in their favour?

Neither German Aviation Capital, Victor Topa or Ana Topa issued a comment.

Airbus declined to comment directly on its part in this hugely controversial deal. But the company stated: “Airbus has implemented a benchmark Ethics & Compliance programme and now has a strong culture with respect to ethics and compliance, approaching this in the same way as safety and quality. The company remains committed to upholding the highest ethical and compliant standards in all our activities worldwide.”

Hi Fly Transportes Aereos – the second intermediary

Hi Fly Transportes Aereos, the second member of the consortium, is one of the largest wide-body wet leasing specialists in the world. Its owner is Paulo Mirpuri.

Mirpuri is a Portuguese tycoon whose foundation sponsors a yacht racing team. A vocal anti plastic campaigner, he was also linked to a right wing evangelical Christian political party in Portugal.

Mirpuri’s company has attracted criticism after it was commissioned by the UK’s Home Office to fly migrants who wished to reside in Britain back to their countries of origin.

Mirpuri was visiting Nepal as the deal was taking place, trekking to Everest base camp in 2017.

Both Hi Fly Transportes Aereos and Paulo Mirpuri did not make a comment for this article.

AAR Corp – the third intermediary

AAR Corp, an American aviation services company which in 2022 made profits after tax of US$77.4m on revenues of US$1.8 billion, is the member of the consortium. AAR Corp went to the US Department of Justice, the U.S. Securities and Exchange Commission and the UK Serious Fraud Office in July 2019 suggesting it may have violated the US Foreign Corrupt Practices Act, in Nepal and South Africa. At the time of this report, there has been no finding by any investigative agency.

In South Africa, there are more details about its potential wrongdoing. There are suggestions that AAR Corp along with its local partner offered an unrealistically low price to win a contract worth approximately USD 74.49 million (South African Rand 1.25 billion, based on the the exchange rate of the day of bid submission), according to the Judicial Commission of Inquiry into State Capture Report. Investigations into the alleged corruption are still ongoing in both Nepal and South Africa.

AAR were sent detailed questions about the issues raised in this report but have not made a comment.

A key figure for AAR Corp in Nepal was Deepak Sharma. Of Nepali origin and a British national, Sharma signed the sales and purchase agreement with Nepal Airlines as the company’s president of international supply chain.

Sharma chose not to make any comment on any aspect of his involvement in this deal.

Hi Fly X Ireland – the consortium company

Hi Fly X Ireland is an important cog in this story because it was set up by AAR Corp, German Aviation Capital and Hi Fly Transportes Aereos to execute the deal.

Hi Fly X Ireland invoiced Nepal Airlines for $215.38 million and the money was to be paid into an escrow account. The company is registered in the tax haven of Ireland. There is no suggestion of any wrongdoing.

Hi Fly X Ireland had no employees for the period of the deal. We looked into the corporate filings of Hi Fly X Ireland, but could not see any indication of a $136.39m transfer from Nepal Airlines to the company. Irish corporate disclosure laws permit Hi Fly X Ireland accounts to provide very little information.

But we have established that an employee of German Aviation Capital was another key figure in the consortium. Christian Nuehlen was appointed Director of Hi Fly X Ireland and managing director of German Aviation Capital Singapore.

Nuehlen is closely associated with all three consortium companies: he was the managing director of Hi Fly X Ireland and of German Aviation Capital Singapore in 2017-18.

Nuehlen was an employee of “related company” German Aviation Capital in Germany, according to the 2017-18 financial statement for Hi Fly X Ireland (though it’s unclear whether this refers to the German company or the Singapore one).

Hi Fly X Ireland is owned by Hi Fly X FZCO, a company based in the United Arab Emirates, another secrecy jurisdiction. We could not find information on its directors and ultimate beneficiary.

Neuhlen established another company, Aircraft Finance Germany which Deepak Sharma joined in September 2018, three months after the Nepal Airlines deal concluded.

On January 27, 2020, Hi Fly X Ireland changed its name to AFG Aviation Ventures No. 1 (Ireland) Limited. Its full ownership was transferred to Aircraft Finance Germany in July 2022 or earlier. It is not clear when the ownership of AFG Aviation Ventures No. 1 (Ireland) Limited (previously Hi Fly X Ireland) was transferred from Hi Fly X FZCO to Aircraft Finance Germany.

This shows there is a close three-way link between German Aviation Capital, Hi Fly X Ireland and Aircraft Finance Germany, whose senior vice president Mauricio Guevara had worked at Airbus in the past.

Hi Fly X Ireland and Christian Nuehlen did not make a comment for this article.

Why this matters 

By mid-Jan 2023, the interest, principal and penalty Nepal Airlines owed to the two pension funds Citizens Investment Trust (CIT) and Employees Provident Fund (EPF) which lent it money to buy its two planes had been capitalised to over Rs 31.4 billion. Nepal Airlines negative net worth stands at Rs 1.79 billion.

Both pension funds have suffered profit reductions because of provisions set against money owed from Nepal Airlines.

This may slash the annual dividends the funds pay each year to their members and investors in the next year, according to officials of both organisations. There are about 750,000 members of Citizens Investment Trust and 583,173 contributors and members of the Employees Provident Fund (EPF).

While our investigation revealed new details about the people and companies behind the deal, many questions remain unanswered.

This deal has contributed to a situation in which Nepal Airlines has more liabilities than assets. And with so much at stake for ordinary people, a thorough investigation is needed to properly establish who benefited from what  the 2019 Subcommittee Report on the Purchase of Widebody planes for Nepal Airlines” described as “corrupt deals”.

How Airbus was embroiled in two deals in Nepal 

The story of Nepal Airlines’ 2017 purchase of two Airbus jets for $216.38m goes back nine years to a previous purchase agreement between the two companies.

On 5 November 2009 the airline’s then executive chairman Sugat Ratna Kansakar signed an agreement with Airbus to buy two jets (one wide body and one narrow body) for the national flag carrier.

The next day, Nepal Airlines sent a non-refundable Rs 57.3 million ($750,000) commitment fee to the French planemaker.

Kansakar was arrested for not following legal procedure while sending the commitment fee.

In 2010, Kansakar and five airline officials were summoned to appear in court charged with allegedly not following due process and also for alleged financial irregularities in issuing the commitment fee.

Airbus returned the commitment fee on April 2011. Kansakar and the officials denied the allegations and were later acquitted of all charges.

The plan to buy the planes got delayed due to the court cases.

In 2013, Nepal Airlines revived the procurement: the state-owned company said it would buy two narrow body planes from Airbus.

But as soon as they revived the procurement, a writ petition against the Nepal government and Airbus filed by Saraswati Thapa, a public interest lawyer, at the Supreme Court demanded that the government issue a new tender to buy the planes. The petition argued features such as the number of seats and type of planes (one narrow and one widebody) were changed in the new agreement.

In response to the Supreme Court’s summons, Sheel Shukla, Airbus’s senior sales director, said the fundamentals of the two planes remained the same. According to the court documents, Shukla argued the changes in the number of seats were based on Nepal Airlines’ commercial demand and passenger numbers.

In a written reply to the court, the government said any breach of procurement laws or errors in procurement process could be challenged legally.

Nepal Airlines argued that the number of seats was not yet decided so could be changed but this would have no impact on pricing.

The Supreme Court denied Thapa’s demand to halt the procurement process.

So Nepal Airlines continued the procurement process without any changes.

Six years after the first agreement was signed, two A320 jets were delivered in Kathmandu in February and April of 2015.

After the planes were delivered in Nepal, the Supreme Court issued a verdict on Thapa’s case, ruling against the petition.

But the story did not end here.

In July 2016, France’s national financial prosecutor’s office, Parquet national financier (PNF) opened an investigation into allegations of bribery schemes by SMO, an Airbus subsidiary that sold planes to airlines around the world.

The French investigation included the $150m Nepal deal for two narrow body planes.

The French authorities alleged the international plane deals with Airbus “could constitute the offense of bribery of a foreign public official”.

The investigation suggested the French planemaker had involved two Nepalese intermediaries  “who stated that they were in contact with Nepalese public officials and Nepal Airlines executives”.

SMO, an organisation that was housed within EADS France SAS (which later became Airbus Group SAS), was identified by investigators as allegedly playing a key role in facilitating the deal.

Emails and financial records obtained by French investigators suggested €340,000 was paid to a Nepalese intermediary with the intention of passing on that money to a third party. According to court documents seen by CIJ Nepal, French investigators suspected there was a commitment to pay a total of US$1.8 million in relation to the Nepal Airlines campaign.

We could neither trace the US$ 1.8 million nor find out whether the money made its way in Nepal and into the pockets of politicians and public officials.

Airbus declined to comment directly on its part in this hugely controversial deal. But the company stated: “Airbus has implemented a benchmark Ethics & Compliance programme and now has a strong culture with respect to ethics and compliance, approaching this in the same way as safety and quality. The company remains committed to upholding the highest ethical and compliant standards in all our activities worldwide.”

The second jet purchase

While the investigation into the controversial narrow body deals was still ongoing, Nepal started the process to buy another two new widebody planes. This US$216.38 million purchase of two wide body jets would ultimately spark more controversy.

It is unclear why Nepal did not buy the planes directly from Airbus itself.

It could have been that Airbus wanted to distance itself from the next round of the deal because of its past experience.

Now, an investigation into the widebody deal by Center for Investigative Journalism Nepal and Finance Uncovered and appears to show that the deal was designed so that third party intermediaries  supplied the jets and specifications of tender bids seemingly allowed Airbus to refrain from participating in it.

Our findings are based on the examination of a large number of documents – including court filings in Nepal and France and parliamentary reports – as well as interviews with former aviation officials, lawyers, lawmakers and industry insiders.

Third parties

In September 2016, Nepal Airlines launched a Request for Proposals from aviation companies for new two wide body planes. But it failed to specify whether it sought new or old planes. Nepal Airlines, instead, inserted a clause in the tender specification stipulating the planes should not have flown a “maximum (of) 1000 flight hours”.

A top government official with direct knowledge of the deal told us this condition was inserted so that others could enter the procurement process.

“The specification of 1000 flight hours was inserted so that Airbus would not take part in the bid as it could only sell brand new planes,” he said. “Airbus provided all the ‌information [to Nepal Airlines including data on passengers and destinations]”.

At least three regulatory bodies, including Nepal’s state spending watchdog, the Office of the Auditor General, have questioned the government’s decision not to buy the new planes directly from the manufacturer despite it being clearly stated in Nepal Airlines’ procurement laws.

In its report published in January 2019, the parliamentary committee said that the insertion of the specification was “malicious”.

The Office of Auditor General stated in its 2017 report: “Competition should have been among the manufacturers but the specification in the procurement was altered to a maximum of 1,000 flight hours, making it unclear whether it was buying a new or old plane.”

When the Parliamentary Committee raised these questions with officials of Nepal Airlines in early 2019, the officials told the committee they couldn’t establish contact with Airbus, according to the Parliamentary probe report.

But our findings call into question their claims. Nepal Airlines, according to our investigation, was not only in frequent communication with Airbus, but the plane manufacturer also advised Nepal Airlines through the procurement process.

We laid out our full findings to Nepal Airlines and asked the company detailed questions. It acknowledged our communications but has not issued a formal response to this article.

Weight of the plane 

The weight of a plane is very important. The heavier the plane, the longer its range.

For Nepal Airlines, buying planes with a maximum take-off weight of 242 tonnes would open up potentially lucrative routes to London and Sydney.

In January 2017, the consortium of three aviation companies that won the bid, offered to supply widebody planes with a maximum take-off weight of 242 tonnes.

AAR Corp had offered “highest available maximum take off weight” in the Request for Proposal.

But when Nepal Airlines signed a Memorandum of Understanding (MoU) with the supplier, the plane’s weight was decreased to 230 tonnes.

How did this happen? 

Our investigation found that Airbus was involved in the decision making process that saw NAC accept a reduction in the weight of the plane.

On January 18, 2017, the jet supplier wrote to NAC saying “230 maximum takeoff weight is sufficient” for Nepal. It added: “NAC does not need more than 230 tonnes.”

Instead of responding to the supplier, NAC sought guidance from Airbus on the weight of the plane.

An email from an Aircraft Sales and Marketing Specialist at Airbus, to Nepal Airlines executives pointed out five disadvantages of having 242 tonne planes and only one advantage: a longer range.

Sources have indicated the NAC decided to reduce the planes weight by 12 tonnes based on Airbus’s advice. When the parliamentary committee asked the NAC officials why they reduced the weight, they presented the email from Airbus, which they said emphasised the advantages of 230 tonne planes for Nepal.

In its final report, the parliamentary committee stated that “NAC colluded with suppliers” because it did not negotiate the price after the weight of the plane was reduced. The committee stated that NAC should have paid US $ 8.4 million less by opting for the 12 tonne low weight capacity option.

The aircrafts low weight capacity has hampered NAC’s plans to fly long haul trips to London and Sydney.

In a TV interview in May, 2016, NAC’s managing director Sugat Ratna Kansakar said long haul flights were their primary goals. He said, “Long haul flights were the primary goal.” in a three-year improvement plan.” He added, “When we (Nepal Airlines) are removed from the EU’s safety list (blacklist), we should have capability to operate Kathmandu-London nonstop flight.”  The plan was designed with inputs from Airbus officials.

NAC had eyed destinations such as Sydney and London, where up to 300 Nepalese travellers flew daily. With two weekly flights, NAC had planned to target 50 percent of total Sydney- Kathmandu route passengers, according to NAC’s procurement plan for widebody planes.

A business plan, reviewed by a chartered accountant in April 2017, suggested that one of the 330-200 planes would begin flying to Sydney from Kathmandu a year after delivery. The aircraft was to have flown to Sydney 208 times annually. According to the review, that NAC had projected US$ 795,802 revenue in the first four years flying the Kathmandu/Sydney route.

But a former NAC employee of the Engineering Department told us that the 230-tonne aircraft cannot carry enough fuel to travel directly to Sydney.

A former top tourism ministry official had similar observations. “The lower weight is why these planes can not make long-haul flights to destinations such as Australia.”

In July, 2020, the Office of the Auditor General warned of significant losses if the long haul flights were not operational. 

Gauri Bahadur Karki, a former judge at the Special Court, an anti-corruption court in Nepal, told us: “They [Nepal Airlines] bought planes with less load and paid the price for more capacity. They did not reduce the price even after reducing the load of the plane. This led to a huge loss for Nepal Airlines.”

A former tourism official we spoke with echoed Karki’s views.

“The 230 tonnes of aircraft’s maximum weight capacity has made it impossible for NAC to fly directly to Australia immediately,” said a former tourism ministry official who has knowledge of these matters. Nepal, however, cannot fly to London, another targeted destination for direct flight, until the EU removes a ban on Nepal Airlines from flying to European Union countries.

NAC’s managing director Sugat Ratna Kansakar said: “Regarding (the) Global Tender to purchase two Wide Body aircrafts, please be informed that it is being investigated by CIAA (Commission for the Investigation of Abuse of Authority). I, therefore, don’t want to answer or comment on any of the issues you have raised.”

Price escalation 

Under Nepal’s procurement law, a state agency must first plan for the procurement. Then, the law requires it to conduct a market survey and collect market prices of goods and services it procures before making the cost estimation. Whether it is buying a piece of furniture for an office or an aircraft, this rule applies to all government purchases.

Officials of Nepal Airlines should have followed this process. But they appear to have violated it.

Nepal Airlines calculated the cost of the planes by using a 2008 price as a benchmark and applying annual increases of 2.77 percent, according to the parliamentary committee’s investigation report. As a result, it paid more and incurred a huge loss to the NAC, the parliamentary report stated.

The report further said: “During the cost estimation for the planes, the NAC was in direct communication with Airbus. But instead of calculating the cost based on the market price and discount, it estimated the cost based on the 2008 price and the price escalation.”

Nepal Airlines stated to the Parliamentary Committee probe that they did not know the price of the planes in 2016 when it calculated aircraft’s estimated costs.

But a public statement by Sugat Ratna Kansakar, the managing director, shows he was aware of aviation catalogue prices. Kansakar told a television interviewer in May 2016: “The aircraft pricing is a bit unique of its kind. We shall have to pay only a half of the catalogue price.”

That Kansakar was referring to half of the catalogue price suggests he may have known the plane’s full catalogue price. But when the state-run company calculated the price, the catalogue price was ignored and a 2008 benchmark price was used, according to the Parliamentary Committee probe.

Calculating the price of the plane based on 2008 valuations appears to have been a flawed approach.

We spoke to a former Airbus official, an NAC retired pilot and a top government official with direct knowledge of the deal on the catalogue price of Airbus planes.

“When there’s a new version (of a plane), the price of the old version reduces by 40-50%,” said a former Airbus official on condition of anonymity.

Airbus also did not reply to the parliamentary committee’s questions about the amount it received from the NAC’s contractor for the two wide body planes.