Buddha Air Nepal

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	27247
Company name	Buddha Air Private Limited
Country	Nepal
Sector	Transportation and Warehousing
Environmental category	B
Department	Infrastructure
Status	Active

Date SPI disclosed	May 30, 2008
Projected board date	July 7, 2008
Previous Events	Invested: September 4, 2008 Signed: August 14, 2008 Approved: August 12, 2008

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

Buddha Air Private Limited (BAPL or the company or the Airline) started operations in Nepal on October 11, 1997 with one brand new Beech 1900D financed by Raytheon Aircraft Credit Corporation USA. The company currently owns and operates five 1900D Beech aircraft and two 1900C Beech aircraft, each with capacity to seat 18 passengers. The company focuses on scheduled passenger flights between the capital, Kathmandu and the regional airports as well as mountain flights (flights over the Himalayan range for tourists). The company plans to purchase ATR42-300s and also construct an aircraft hangar. The purchase of the aircraft will help BAPL meet the anticipated increase in passenger demand and provide the company with an alternative in the absence of leased planes from the aircraft company.

Anticipated development impact of the project

- Contribution to sustainable development:

The resurgence of the tourism industry in Nepal is being hampered by the unavailability of airline services to the major regional hubs. Through its support to boosting tourism, air transport also contributes though indirectly but to a great extent to reduce poverty by generating economic growth, providing employment opportunities (tourism accounts for more than 300,000 jobs in Nepal), earn foreign currency reserves and increasing tax collection.

- Safe, reliable and efficient transportation services to underdeveloped areas:

Being a mainly mountainous country, air travel is important to economic development as well as emergency and essential services to isolated regions of the country with either none or limited road access. BAPL provides essential air transportation services in Nepal, where traveling by road or rail transportation is inconvenient, time consuming and at times impractical in light of the quality of the country’s land-based transport infrastructure and the distances between the country’s urban centers..

- Investment Enabler:

Air transport is an enabler of investment both into and out of countries and regions: viable air transport links are one of the key considerations that influence where international companies choose to invest. Improved air transport links by way of improved connectivity between cities, expand the market in which companies operate. As a result, companies are better able to exploit economies of scale thereby reducing costs, and to specialize in areas of comparative advantage. By opening of markets, air services expose companies to stiffer competition, encouraging them to become more efficient.

IFC's expected development contribution

- Support to Private Sector Company:

IFC will support one of the leading domestic airlines which is providing safe and reliable air transportation services in a country with a geographical terrain that makes road travel difficult and very time consuming;

- Diversification of funding sources:

The company has till now been able to raise financing locally for the acquisition of its current fleet. Given that BAPL anticipates its funding requirements to increase significantly, it has shown a keen interest in engaging with IFC at this juncture. IFC’s investment will also substantially boost the credibility of BAPL and help it to negotiate better terms for its future aircraft purchases.

- Long term financing:

IFC’s loan having an average maturity of ~ 6 years will help provide sufficient financial flexibility to BAPL to undertake its expansion program. This will be one of IFC’s key investments in Nepal’s transportation infrastructure space.

Environmental and social issues - Category B

This is a category B project according to IFC’s Procedure for Environmental and Social Review of Projects because a limited number of specific environmental and social impacts that may result have been, or are being, avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria.

Based on a preliminary review of project information, IFC identified potential environmental, social, health and safety risk in the following areas: environmental, health and safety management systems; aircraft operations safety, including training programs; aircraft maintenance and servicing, including handling and management of hazardous materials and wastes; environmental protection at ground sites; aircraft noise and emissions controls; employee health and safety and fair conditions of work; and cargo handling policy; consumer health and hygiene conditions; and oil/chemical spill containment and recovery. A description of the company's management of these risks has been provided in the Environmental and Social Review Summary (ESRS). BAPL has publicly disclosed the ESRS in a manner and at locations specified later in this document.

BAPL practices responsible environmental, health and safety (EHS) management to minimize potentially adverse social and environmental impacts of its operations. The company maintains integrated systems to manage EHS performance commensurate with the level of risk associated with their operations. These systems incorporate, or are consistent with, ISO standards of quality management and continuous improvement, and are consistent with IFC’s EHS General Guidelines and EHS Guidelines for Airlines.

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