Kenya Airways drops more aircraft in cost-cutting plan

Kenya Airways has reduced its fleet by two more planes as part of cost-cutting measures seeking to steady the loss-making airline.

Latest data shows that the national carrier’s fleet size narrowed in the last nine months to 41 aircraft from 43 in December 31, 2021, after two leased Embraer 190 aircraft were surrendered following expiry of lease.

Of the 41 aircraft, 18 are owned/financed by the airline itself while 23 are on lease arrangement.

The Kenya government is pushing for restructuring of the airline on the back of a multimillion dollar bailout plan where the struggling airline is required to reduce its network, operate a smaller fleet and possibly reduce its workforce.

Kenya Airways (KQ) has focused on restructuring its fleet, including selling aircraft and sub-leasing to other airlines in an attempt to return to profitability.

Its fleet size dropped to 39 in 2017 from a high of 52 in 2015, before rising to 43 in 2021.

The airline is renegotiating aircraft lease contracts with lessors as part of a string of austerity measures to reduce operating costs.

Others are engagement with principal shareholders for financial support, engagement with key suppliers and financiers for moratoria, freeze on non-critical spending and implementation of temporary salary cuts for staff.

It has also increased focus on cargo business and has already converted two passenger aircraft to cargo freighters to increase capacity.

Reducing costs

In a statement last week, the airline said its board of directors and the management have been engaging with the lessors to reduce the overall cost of aircraft rentals.

“Generally, the costs are within the prevailing market rates at the time negotiating the transactions,” the airline said.

In 2021, KQ’s fleet ownership cost declined by 41 percent to Ksh16.63 billion ($138.58 million) from Ksh28.57 billion ($238.08 million) in 2020, while in the six months to June 30 the fleet ownership cost stood at Ksh321 million ($2.67 million).

Firms that KQ deals with in its leasing plan include the Dubai Aerospace Enterprise, AERCAP, Bank of China Aviation and China Development Bank.

Others are Macquarie, Aviation Capital Group, Goshawk, Nordic Aviation Capital, Azzora, and Montrose.

Improved performance

The airline, which is surviving on a state bailout, narrowed its half year loss to Ksh9.88 billion ($82.33 million) from Ksh11.48 billion ($95.66 million) in the same period in 2021.

Operating costs declined by 53 percent to Ksh53.11 billion ($442.58 million) from Ksh34.62 billion ($288.5 million)

Its total loss for the year ended December 31, 2021 stood at Ksh15.87 billion ($132.25 million) compared to Ksh36.21 billion ($301.75 million) in 2020.

The government has also taken over an $868.7 million debt owed by the airline in a desperate move to breathe life into the loss-making national carrier that is a subject of a botched State-takeover.

The International Monetary Fund, through its country report for Kenya No 22/232 dated July 2022, said the government is in discussions with KQ creditors over the proposed debt acquisition.

The airline disclosed through its 2021 report that the State, through a letter of support, has committed to continue providing the required financial support to enable the carrier implement its recovery programme and meets its financial obligations.

KQ is 48.9 per cent owned by the Kenya government and a group of 10 local banks that own 38.1 per cent of the shares.

Other shareholders include KLM Royal Dutch Airline (7.8 per cent), employees (2.4 per cent) and other shareholders at 2.8 per cent.