Loss making KQ to sell her 6 Dreamliners in trying to avoid a collapse

[Geza Ulole]

Kenya Airways drops more aircraft in cost-cutting plan​

TUESDAY OCTOBER 11 2022​

Kenya Airways is focusing on restructuring its fleet in an attempt to return to profitability. PHOTO | FILE
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By JAMES ANYANZWA
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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.

Kenya Airways drops more aircraft in cost-cutting plan

It has focused on restructuring its fleet, including selling aircraft and sub-leasing to other airlines.

www.theeastafrican.co.ke

 

[Geza Ulole]

Troubled carrier KQ defaults on $841m aircraft acquisition loan​

SATURDAY OCTOBER 29 2022​

Kenya Airways has defaulted on a $841.6 million loan from the American Exim Bank for purchase of aircraft, the National Treasury has said. PHOTO | FILE | NMG

By JAMES ANYANZWA
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Kenya Airways has defaulted on a $841.6 million loan from the American Exim Bank for purchase of aircraft, the National Treasury has said.

In its latest Annual Debt Management Report (2021/2022 fiscal year) that the loss-making national carrier secured the loan with a security from the national government but failed to repay.

Of the 841.6 million, the government guaranteed $525 million.

“Kenya Airways defaulted on both the guaranteed portion of the loan amount as well as the non-guaranteed portion,” the National Treasury says.

“The National Government is in the process of novating the debt to be finalised during 2022/2023 fiscal year.”

Original contract extinguished​

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Novation is the process by which an original contract is extinguished and replaced with another, under which a third party takes up rights and obligations duplicating those of one of the parties to the original contract. This means that the original party transfers both the benefits and burdens under the contract.

KQ’s loan from the Exim Bank of USA was meant to purchase seven aircraft and one engine.

“The Covid-19 pandemic containment measures adversely affected the airline business globally including KQ. Government intervention included, among other financial support, the settlement of the guaranteed debt extended to KQ,” National Treasury’s director in charge of debt management, Dr Haron Sirma told The EastAfrican.

KQ chief executive Allan Kilavuka however disputed the Treasury figure when reached by The EastAfrican.

“The value you quote for the US Exim facility is not correct; $485 million is what relates to the US Exim guaranteed debt. I don’t have the context... maybe they have included other guarantees, not just the US Exim facility,” he said.

Negotiated moratoria​

He said that due to Covid-19, when it reduced operations, KQ negotiated moratoria.

“The airline is yet to get back to full operations and has requested GOK (Government of Kenya) to support on the guaranteed loan to avert the possibility of the loan going into default.”

Treasury says it will closely monitor contingent liabilities arising from state-owned enterprises, as they pose major fiscal risks to the economy.

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

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

Push for restructuring​

The government has been pushing for the restructuring of the airline on the back of state bailout plan.

Under the plan the airline is required to reduce its network, operate a smaller fleet and possibly reduce its workforce further.

As a result the airline has focused on restructuring its fleet including selling planes and sub-leasing to other airlines in an attempt to return to profitability.

Data from the airline 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 aircraft (Embraer 190) were returned to the lessor following the expiry of their leases.

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

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

Renegotiating lease contracts​

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

Other measures rescue measures include engagement with principal shareholders (government) for financial support, engagement with key suppliers and financiers for moratoria, freeze on non-critical spending and implementation of temporary salary cuts for staff.

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

Troubled carrier KQ defaults on $841m aircraft acquisition loan

Treasury says it will closely monitor contingent liabilities arising from state-owned enterprises like Kenya Airways.

www.theeastafrican.co.ke

 

[Geza Ulole]

 

[Geza Ulole]

KQ to delay November salaries after pilots strike hits sales​

Thursday November 17 2022​

KQ will delay staff salaries for November amid a slump in revenue from a strike by its pilots that left thousands of passengers stranded at JKIA in Nairobi for four days.

By BONFACE OTIENO
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IN SUMMARY​

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Kenya Airways (KQ) will delay staff salaries for November amid a slump in revenue from a strike by its pilots that left thousands of passengers stranded at Jomo Kenyatta International Airport (JKIA) in Nairobi for four days.
The airline’s chief people officer, Tom Shivo, yesterday informed workers through a memo of the pay delay that is likely to affect 3,544 workers that were on its payroll in December.
The pay notice comes days after a labour court on November 8 ordered the pilots to resume work.

Members of the Kenya Airline Pilots Association (KALPA), which represents about 400 pilots at the carrier, went on strike on November 5 after failing to resolve a dispute over pension contributions and settlement of deferred pay.

The pilots' boycott cost the airline an estimated Sh300 million daily or Sh1.2 billion for the four days, affected more than 10,000 passengers and led to the cancellation of dozens of flights.

The airline's staff costs stood at Sh12.7 billion, signalling that the carrier requires in excess of Sh1 billion monthly for wages.

“Due to constraints occasioned by the reduction of revenue and unplanned expenditure incurred during the recent industrial action, the November 2022 payroll run is likely to be delayed,” said Mr Shivo in the memo to workers.

The airline said it would also delay payment of the part of salaries that were deferred following pay cuts in the wake of Covid-19 disruptions.

“The initial plan was to pay both November 2021 and December 2020 deferred pay in this month’s payroll, but this plan has now been compromised.

We will, however, endeavour to pay November 2021 deferred pay in this month’s payroll,” said Mr Shivo.

Kenya Airways, which is nearly 50 per cent owned by the government, earlier said it planned to cancel its bargaining and recognition agreements with the pilots’ union, saying their recent strike was unlawful and amounted to economic sabotage.

The union was demanding the resumption of regular payments to its members’ pension plan, which were stopped in 2020 when the Covid-19 pandemic started, and the payment of pension arrears.

It also wanted the carrier to start paying salaries that were deferred during the health crisis.

The airline’s management says it has been working hard to fully recover from the pandemic and accuses the pilots of jeopardising that push.

Before the strike, KQ had warned the action could jeopardise its recovery from the pandemic, resulting in losses of at least Sh 300 million a day.

However, financial turmoil at KQ preceded the pandemic.

The airline sank deep into the red after it borrowed heavily to buy new aircraft at a time when its passenger business slumped mainly due to frequent terrorist attacks in Kenya.

KQ, which has been surviving on State bailouts since the Covid-19 pandemic, reported a Sh9.8 billion loss for the six months to June -- a better performance than the Sh 11.48 billion loss it recorded in the same period a year earlier.

The airline, which has remained in the red since 2012, attributed its negative performance to a global spike in fuel prices which has raised fresh concerns about the management’s decision on fuel hedging in a year when it needed the strategy to work the most.

KQ said it would have returned an operating profit of Sh 1.5 billion in the half year had the fuel prices not run out of control.

The carrier said the cost of fuel was up 65 per cent year on year, weighing down its recovery plan in the half-year period.

Fuel prices have been on a steady rise since the beginning of the year on the back of the Russia-Ukraine war that interrupted global supply.

→ botieno@ke.nationmedia.com

 

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