Companies

KQ saves Sh11bn on new aircraft leasing terms

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Kenya Airways chief executive Allan Kilavuka. FILE PHOTO | NMG

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Summary

  • Kenya Airways saved Sh11 billion in the last financial year on aircraft ownership fees after changing the lease terms on its fleet from fixed costs to hourly rates.
  • The new arrangement has seen the cost of maintaining its fleet drop from Sh28.5 billion in 2020 to Sh16.6 billion last year.
  • The national carrier has a fleet of 36 aircraft — it owns 19 of these while it has leased 17 from the lessors including Nordic Aviation Capital and GECAS.

Kenya Airways #ticker:KQ saved Sh11 billion in the last financial year on aircraft ownership fees after changing the lease terms on its fleet from fixed costs to hourly rates.

The national carrier reached a deal with the lessors last year to only pay when they fly leased aircraft following the grounding of its services on the back of Covid-19, which saw planes remain idle.

The new arrangement has seen the cost of maintaining its fleet drop from Sh28.5 billion in 2020 to Sh16.6 billion last year.

The new deal, which has saved the airline billions in leasing fees, has seen KQ only pay the lessors when the aircraft is flying, a departure from the previous agreement where KQ would still pay the lease amount even if a plane is idle.

“Last year, we negotiated with our lessors and we were able to make very significant savings of over Sh10 billion,” said KQ chief executive Allan Kilavuka.

The national carrier has a fleet of 36 aircraft — it owns 19 of these while it has leased 17 from the lessors including Nordic Aviation Capital and GECAS. Embraer forms the bulk of its fleet with 15 aircraft.

Mr Kilavuka also said they returned some of the aircraft that they had leased such as the Boeing 737-700, which helped them to save at least 50 percent of the cost in early termination.

The carrier has negotiated for a productivity-based method of payment with its lessors to avoid the fixed cost and cut expenses involved in fleet management at the time the airline is struggling with low passenger demand.

The carrier has also extended the lease of its two Boeing 777-300 aircraft to Turkish Airlines, a move that will earn it an extra income.

Kenya Airways leased two of its idle planes to a Congo carrier last year in a deal that will see KQ save more than Sh100 million annually on maintenance costs and earn additional revenue from hiring the crafts.

The national carrier has leased two Embraer jets that remained parked at the Jomo Kenyatta International Airport in Nairobi after it cut routes and frequencies on the back of low numbers of passengers in the last two years.

The carrier has been trying to cut costs to remain afloat amid the challenges of the Covid-19 pandemic and legacy problems.

Kenya Airways narrowed its net loss for the year ended December by 56.58 percent on higher revenue as travel picked up with the easing of Covid-19 restrictions.

The national carrier reported a net loss of Sh15.8 billion in the review period compared to a net loss of Sh36.2 billion the year before when travel restrictions hit operations hardest, grounding its planes for months.

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