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Pay-for-use leasing deal saves KQ Sh4.7 billion

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Kenya Airways CEO Allan Kilavuka. FILE PHOTO | NMG

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Summary

  • Kenya Airways Chief Executive Allan Kilavuka said the airline reached a deal with the lessors in 2021 to only pay when they fly leased aircraft.
  • The deal saved the airline billions switching from paying for idle aircraft during the year affected by the Covid-19 pandemic to only making payments when leased planes were flying.
  • KQ has been trying to cut costs to remain afloat amid the challenges of the Covid-19 pandemic and legacy problems.

Kenya Airways #ticker:KQ saved $45 million (Sh4.7 billion) in fees after it changed the lease terms on its aircraft fleet, opting for hourly rates in place of fixed costs.

Kenya Airways Chief Executive Allan Kilavuka said the airline reached a deal with the lessors in 2021 to only pay when they fly leased aircraft.

The deal saved the airline billions switching from paying for idle aircraft during the year affected by the Covid-19 pandemic to only making payments when leased planes were flying.

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

“The big one in 2021 was negotiation with our lessors and got concessions reduced on our lease rentals from fixed to what we call pay by the hour. So you pay by the hour which is where you pay as you fly. That was big, saved us almost 45 million dollars for 2021,” he said.

KQ, as the airline is known by its international code, has been trying to cut costs to remain afloat amid the challenges of the Covid-19 pandemic and legacy problems.

It has also cut $3.1 million after terminating a leasing agreement of the two Boeing 737-700 from the lessors.

KQ says it has also resorted to delays in paying creditors and suppliers even as it eyes additional resources from a multibillion government bailout currently in parliament.

“We did a lot of cash containment measures, for example, deferment of some of the payments, it is not the best thing but we didn’t have a lot of money so we negotiated for deferment of payments,” Mr Kilavuka said.

The airline has cut on its frequencies at the moment due to low demand.

However, KQ has failed to reach a deal for its pilots to be paid per trip as it seeks a lower wage bill.

Pilots account for 10 percent of the airline’s total workforce but take home the equivalent of 45 percent of the overall payout to employees or Sh6.1 billion based on the carrier’s wage bill for the year to December.

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