Transport

KQ move to sell seven of its key planes lauded

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Kenya Airways planes at the JKIA in Nairobi. FILE PHOTO | NMG

Experts have lauded the plans by Kenya Airways #ticker:KQ to sell seven of its best fleet saying the move will help the national carrier to cut ballooning losses and make it sustainable in the wake of rising competition from other airlines.

The move to sell and lease them back, argue the experts, will help in minimising the high cost of maintenance as the passenger numbers fall while losses are growing.

The airline is selling six of its high capacity aircraft-Boeing 787 -8 Dreamliner and one Boeing 777-300 to shore up its financial position.

“This is the right step by the airline that will ensure they do not have an idle equipment that adds up on the cost of operation,” says Collins Wanderi, an aviation expert.

“When you hire an aircraft, you cut on things like services and insurance cost as this remains the responsibility of the leasing firm, hence eliminating the cost of hiring engineers and buying spares parts for the equipment.”

He said having an idle equipment that a company is paying loan on, coupled with low load factor is a big liability to the company.

Economist Toni Watima said the move will help KQ to get some cash in its bid to turn around its fortunes.

“It all depends on the amount of money that they will get from the sale of the aircrafts, but I agree leasing is a good thing as opposed to owning as this is a cost-efficient way of managing costs,” said Mr Watima.

Leasing out, he noted, enables the airline to run the fleet with minimum cost as the element of maintenance would be removed.

He, however, cautions that the airline should not fall into the same trap that it did last time when it leased out its aircraft at a higher cost only to renegotiate later for a lesser amount, a move that affected its balance sheet.

The economist, however, questioned the move to sell the aircraft at the time when plans of renationalisation of the carrier are ongoing.

“When the government takes over the management of the airline, they take all of its liability too. That is why I am wondering why KQ would want to sell the aircraft,” he said.

The Parliament approved plans to nationalise KQ as it seeks to reverse its dwindling fortunes. The carrier was privatised 23 years ago.

The move will see government buy out all the small shareholders to become the sole owner of the loss-making carrier.

The plan will also see the Treasury convert the shares held by banks, which had previously been swapped to equity, converted into bonds.

The Treasury remains Kenya Airways’ biggest shareholder with a 48.9 percent stake while strategic partner KLM is third with 7.8 percent on the shareholders’ ranking after the banks who hold 38.1 percent.

KQ had proposed the formation of a subsidiary to manage operations at the JKIA for a concession period of 30 years, but the plan was shot down by parliament.

The plans, which have so far been cancelled by the airline, was contained in its Privately Initiated Investment Proposal (PIIP), included the creation of a special purpose vehicle (SPV) — a unit of a company which is shielded from the parent firm’s financial risk — to operate, maintain and develop JKIA.

The national carrier acquired the Dreamliner fleet in 2014 as it sought higher capacity equipment to expand on its routes.

Selling of the seven aircraft is the latest in the raft of measures that the airline is seeking to remain afloat in the competitive aviation sector. Last week, the airline pulled out of the two routes in West African countries of Benin and Gabon effective October 14 citing that the routes were no longer profitable.

The carrier saw its first-half pretax loss more than double from a year earlier to Sh8.56 billion.