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Kenya Airways planes grounded in leasing fees fight

kivaluka

Kenya Airways CEO Allan Kilavuka. PHOTO | DIANA NGILA | NMG

Two aircraft leasing firms have rejected Kenya Airways’ #ticker:KQ proposals to reduce the cost of hiring their planes in a row that looks set to ground several planes as the airline proceeds with a restructuring.

Kenya Airways chief executive Allan Kilavuka said the two lessors were opposed to their new payment terms, a move that has seen them ground their planes at Jomo Kenyatta International Airport (JKIA) in Nairobi.

The other six lessors, though not fully in agreement with the reduced payment terms proposed by the airline, are open to discussion and have not grounded their planes.

KQ, as the airline is known by its international code, said it could not reveal the number of planes affected so as not to jeopardise negotiations.

The State is pushing for the restructuring of KQ on the back of its multi-billion shilling bailout of the airline.

KQ will be required to reduce its network, operate a smaller fleet, and possibly lay off more staff under the bailout terms.

“We are asking them to reduce their cost but some are not agreeable to the terms we are proposing. Until we agree, we want to put a pause to our relationship,” said Mr Kilavuka on Wednesday.

“Two of them are not agreeable to the concession we are proposing. The other six are open to discussion and we have not signed up anything yet. Their planes are operational.”

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.

It also 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 deal, which has saved the airline billions of shillings 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 was idle.

But some lessors have now rejected the plans saying the initially agreed hourly rates cannot be lowered further.

Mr Kilavuka said the planes whose lessors are in dispute with KQ over the new payment terms include Boeing 737 narrow-body jets, Boeing 787 wide-body jets and Embraer.

A huge number of the planes mainly fly routes such as Southern Africa, West Africa, Dubai and Mumbai.

The Business Daily could not immediately establish the lessors who had rejected KQ’s new concession request. However, the carrier has stated in the past that some of its lessors include Nordic Aviation Capital and GECAS.

The national carrier has a fleet of 42 aircraft, either owned or on lease, according to data from its financial report in the year ended December 2021.

These comprised nine Boeing 787 wide-body jets, 10 Boeing 737 narrow-body jets, 15 Embraer regional jets, two Boeing 737 freighters, and six Bombardier Dash 8-400.

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

Restructuring its fleet, including selling aircraft and sub-leasing to other airlines, has been one of KQ’s focus areas in recent years as it seeks to return to profitability.

The fleet size has been dropping since 2015 in a period that has seen KQ struggle to return to profitability after making steep losses in 2014, causing some of its engineers and pilots to seek greener pastures.

It had 52 airplanes in 2015 and the fleet dropped to 39 in 2017 before rising to 42 last year.

KQ 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, including the grounding of its planes for months.

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