KQ saves Sh11bn on new aircraft lease terms

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KQ saves Sh11bn on new aircraft lease terms


Allan Kilavuka, Managing Director of Kenya Airways. FILE PHOTO | NMG

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Summary

  • Kenya Airways saved 11 billion shillings in the last financial year on aircraft ownership costs after changing its fleet lease terms from fixed costs to hourly rates.
  • The new arrangement has seen the cost of maintaining its fleet drop from 28.5 billion shillings in 2020 to 16.6 billion shillings last year.
  • The national carrier has a fleet of 36 planes – it owns 19 while it has leased 17 from lessors including Nordic Aviation Capital and GECAS.

Kenya Airways #ticker:KQ saved 11 billion shillings in the last financial year on aircraft ownership costs after changing its fleet lease terms from fixed costs to hourly rates.

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

The new arrangement has seen the cost of maintaining its fleet drop from 28.5 billion shillings in 2020 to 16.6 billion shillings last year.

The new agreement, which saved the airline billions in rental costs, allowed KQ to only pay lessors when the aircraft flies, unlike the previous agreement where KQ would still pay the amount of the lease even if an aircraft is inactive.

“Last year we negotiated with our lenders and we were able to achieve very significant savings of over 10 billion shillings,” KQ managing director Allan Kilavuka said.

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

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

The carrier has negotiated a productivity-based payment method with its lessors to avoid fixed costs and reduce fleet management expenses at a time when the airline is struggling with weak passenger demand.

The carrier has also extended the lease of its two Boeing 777-300s to Turkish Airlines, a move that will earn it additional revenue.

Kenya Airways leased two of its idle planes to a Congolese carrier last year in a deal that will save KQ more than 100 million shillings a year on maintenance costs and earn additional revenue through aircraft leasing.

The national carrier has leased two Embraer jets which have remained parked at Jomo Kenyatta International Airport in Nairobi after cutting routes and frequencies due to low passenger numbers over the past two years.

The carrier has tried to cut costs to stay afloat amid the challenges of the Covid-19 pandemic and legacy issues.

Kenya Airways reduced its net loss for the year ending December by 56.58% on higher revenues as travel resumed as Covid-19 restrictions eased.

The national carrier reported a net loss of 15.8 billion shillings in the reporting period, compared to a net loss of 36.2 billion shillings the previous year, when travel restrictions hit operations hardest. , grounding its planes for months.

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