Nepal moves to open merger path for helicopter operators as industry calls for tax and regulatory facilitation

KATHMANDU: The Nepal government is preparing to introduce provisions that would allow helicopter companies to merge, a move the aviation industry has broadly welcomed as a potential solution to the sector’s growing financial, operational and regulatory pressures.

The proposed changes are expected to be incorporated into Nepal’s revised aviation policy, with the government seeking to provide greater flexibility to helicopter operators facing challenges in maintaining fleet sizes, expanding investment and ensuring sustainable operations.

A senior official at the Ministry of Culture, Tourism and Civil Aviation said the revised aviation policy is being formulated with provisions that would facilitate mergers among helicopter companies.

Industry stakeholders have welcomed the proposed policy shift, but have urged the government to simplify the regulatory and tax procedures involved in mergers.

Pratap Jung Pandey, president of the Airlines Operators Association of Nepal and chairman of Kailash Helicopter Services, said consolidation could help operators move beyond limited-scale operations and build stronger, more capable aviation companies.

“Instead of operating with limited capacity, it is more important to build companies that can operate at a larger scale and provide services more efficiently,” Pandey said. “Mergers could be a key option for strengthening investment and improving aviation safety.”

He, however, said the government needs to remove procedural hurdles and provide an effective facilitation mechanism for companies seeking to merge.

The issue has gained greater urgency after the Civil Aviation Authority of Nepal (CAAN) directed helicopter operators to maintain a minimum fleet of five helicopters. The requirement has placed additional pressure on smaller operators, many of which currently operate fleets below the prescribed threshold.

Industry welcomes merger option but seeks policy reform

Murali Dhar Joshi, general manager of Simrik Air, said the government’s decision to open the door to mergers is a positive development for Nepal’s helicopter industry.

According to Joshi, the requirement for operators to maintain a minimum fleet of five helicopters has been addressed through the proposed aviation policy, but the industry now needs practical mechanisms to implement consolidation.

“Opening the door for mergers is a welcome step. The aviation policy has addressed the requirement for each company to maintain a fleet of five helicopters,” Joshi said. “At present, around half a dozen companies operate with four helicopters. For them, the alternatives are either to merge or increase their investment and expand their fleet.”

However, Joshi said the existing tax framework could become a significant obstacle to mergers.

He pointed to Section 57 of Nepal’s Income Tax Act, 2058 (2002), titled ‘Change in Control,’ which can have tax implications when a company’s ownership structure changes substantially.

Under the provision, if a company’s ownership structure undergoes a change of 50% or more compared with its ownership structure over the preceding three years, the transaction may, for tax purposes, be treated as a disposal of the company’s assets and liabilities rather than simply a change in shareholding. This can have significant implications for taxable income, asset disposal, tax liabilities and tax-related benefits accumulated by the company.

Joshi said such provisions make the merger process financially and administratively difficult for aviation companies.

“Mergers are not easy. They involve significant risks and financial implications. Therefore, the government needs to amend or provide appropriate relief under Section 57 of the Income Tax Act as part of its economic policy,” he said.

He added that consolidation could also help operators make more efficient use of their workforce and other resources based on fleet size and operational capacity.

Small fleets pose growing challenge for helicopter operators

The requirement to maintain a larger fleet has emerged as a major challenge for Nepal’s helicopter operators, particularly smaller companies with limited access to capital.

The cost of expanding a helicopter fleet is substantial. Industry sources say a new Airbus helicopter can cost around Rs 600 million, making rapid fleet expansion difficult for smaller operators.

At present, companies such as Simrik Air, Air Dynasty and Heli Everest operate fleets of around four helicopters, while Shree Airlines, Kailash Helicopter Services and Annapurna Helicopters operate around three helicopters each. Several other operators have only one or two helicopters in their fleets.

Around a dozen helicopter companies are currently providing services in Nepal.

With the industry facing high capital requirements, rising operating costs and regulatory pressure to maintain larger fleets, mergers could offer companies an opportunity to pool capital, optimize resources and strengthen their operational capacity.

For the government, industry stakeholders argue that the merger framework should therefore go beyond simply allowing companies to combine. They say regulatory, tax and administrative barriers must also be addressed to make consolidation commercially viable.

Fixed-wing operators serving remote routes also face pressure

The consolidation debate is not limited to helicopter companies. Some aviation entrepreneurs believe fixed-wing airlines operating on remote routes could also benefit from mergers or consolidation.

Operators such as Tara Air, Sita Air and Summit Air have historically served remote and mountainous destinations across Nepal. However, industry insiders say these operators are facing increasing commercial pressure as road networks continue to expand across the country.

“Airlines operating on remote routes are not generating significant business as roads have expanded to many destinations,” an aviation entrepreneur said. “The utilization of the aircraft currently in operation is estimated to be only around 50%.”

The availability of road connectivity has reduced demand for some short-haul domestic air routes, while the operational costs associated with maintaining aircraft and supporting infrastructure in remote locations remain high.

The challenge is further compounded by the aging fleet structure. Some of the aircraft models currently operated by Nepal’s domestic airlines are no longer in production, making spare parts, maintenance and long-term fleet planning increasingly difficult.

Industry stakeholders argue that mergers and strategic consolidation could help Nepal’s aviation sector improve fleet utilization, reduce duplication of resources, strengthen financial capacity and enhance safety standards.

However, they emphasize that the success of such a policy will depend on whether the government can create a clear, predictable and commercially viable merger framework, particularly by addressing tax implications under Section 57 and simplifying regulatory approvals.

For Nepal’s aviation industry, the proposed merger provision could mark a significant shift toward consolidation. But operators say the government must ensure that the policy is backed by practical tax and regulatory reforms if it wants the merger route to translate into stronger, safer and more sustainable aviation companies.