Costly aircraft deal crippling Kenya Airways

In an effort to stabilise the struggling airline, Kenya Airways has further downsized its fleet by two aircrafts.

Based on recent data, the national carrier’s fleet size decreased in the past nine months from 43 to 41 aircrafts, down from 43 as of December 31, 2021, as two leased Embraer 190 aircraft were returned after their renting elapsed.

Of the 41 aircrafts, 23 are leased and 18 are owned and financed by the airline itself.

It has been established that in response to a multimillion-dollar rescue proposal where the ailing airline is obliged to decrease its network, run a smaller fleet, and possibly slash its employees, the government is pressing for the airline restructuring.

In an effort to earn profit again, KQ has concentrated on reorganising its fleet, selling aircrafts and subleasing them to other airlines.

According to a recent report from KQ, the airline’s fleet shrank from a peak of 52 in 2015 to 39 in 2017, then increased to 43 in 2021.

Also, as part of a series of austerity measures to lower operational expenses, the airline is now renegotiating aircraft leasing agreements with lessors.

Other options include talking to the main shareholders about funding, talking to the major lenders and suppliers about moratoria, freezing non-essential spending, and implementing temporary staff compensation reductions.

In order to improve capacity, it has also strengthened its focus on the cargo industry and converted two passenger planes into cargo freighters.

The airline stated in a statement last week that it has been negotiating with aircraft lessors to lower the overall cost of renting planes.

According to the airline, generally, the charges are within the current market prices at the time of the transactions.

From Sh28.57 billion ($238.08 million) in 2020 to Sh16.63 billion ($138.58 million) in 2021, KQ’s fleet ownership cost decreased by 41 percent, while it was Sh321 million ($2.67 million) in the six months leading up to June 30.

The KQ Airline works with companies including Dubai Aerospace Enterprise, AERCAP, Bank of China Aviation, and China Development Bank as part of its leasing plan.

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

The airline, which is still operating thanks to a government bailout, reduced its half-year deficit from Sh11.48 billion ($95.66 million) in the same period in 2021 to Sh9.88 billion ($82.33 million).

According to a statement from the Airline last week, operating expenses decreased by 53 per cent from Sh34.62 billion ($288.5 million) to Sh53.11 billion ($442.58 million).

In contrast to Sh36.21 billion ($301.75 million) in 2020, its total loss for the year ended December 31, 2021, was Sh15.87 billion ($132.25 million).

In an attempt to save the bankrupt national carrier that was the target of a failed state takeover, the government has also assumed a $868.7 million debt due by the airline.

Through a report to the country, No. 22/232, dated July 2022, the International Monetary Fund stated that the government is in talks with KQ creditors over the proposed debt acquisition.

In its 2021 report, the airline said that the State has promised in a letter of support to keep giving it the money it needs to carry out its recovery program and pay its debts.

The government owns 48.9 per cent of KQ, and a group of ten regional banks hold 38.1 per cent of the company’s shares.

Employees (2.4 per cent), KLM Royal Dutch Airline (7.8per cent), and other shareholders (2.8 per cent) make up the remaining shareholders.