KQ partners beef up fleet as national carrier struggles

Air France-KLM Group has made one of the biggest aircraft orders.

In Summary

•KQ is also facing stiff competition from neighbouring Ethiopian Airlines, the largest carrier in Africa with nearly 130 aircraft in its fleet.

•Rwanda's RwandAir is also eyeing a pie of the regional and international routes, buoyed by investment from Middle Eastern giant Qatar Airways.

Kenya Airways planes at JKIA.
Kenya Airways planes at JKIA.
Image: Douglas Okiddy

Longtime Kenya Airways' partner–Air France-KLM Group has made one of the biggest aircraft orders in the aviation industry, at a time when its relations with the struggling carrier remains frosty.

This is in the wake of a spirited push to nationalise the loss-making carrier which will see KLM, which once had a stake of over 26 per cent, bought out of its current 7.8 per cent stake.

KQ, as it is known by its international code, entered a partnership with KLM Royal Dutch Airlines (KL) in 1995.

In March 2018, Air France (AF) joined to “consolidate the Air France-KLM group's capacity in East Africa.”

The agreement gave customers an improved ability to connect from Europe to 26 different destinations in Africa.

However, this is likely to come to an end two months from now (September), after the two agreed to end a code share for Africa-Europe routes, after suspending the arrangement last year due to the Covid-19 pandemic.

Kenya Airways hopes to continue serving the European market through its London, Paris and Amsterdam flights, albeit with a  reduced capacity.

KQ has downsized its operations including a cut on its frequencies due to low demand with a huge number of its fleet being underutilised.

A decision to lease three of its biggest aircraft, Boeing777-300s with a seating capacity of 400 passengers to Turkish Airlines has come to haunt the carrier.

It has also terminated a leasing agreement of two Boeing 737-700s and gone ahead to negotiate for hourly rates, in the place of fixed costs on its 19 leased aircrafts which include nine Boeing 787s.

“We have to negotiate so they don't levy penalties. We will commit to a working plan,” chairman Michael Joseph told the Star in a past interview.

The pandemic had pushed the carrier to operating 24 aircrafts down from 38.

In what seems to be a strategy to make a strong post-Covid comeback, including on routes KQ has been enjoying code sharing, Air France-KLM Group has issued a tender to both Airbus and Boeing for up to 160 new short and medium-haul aircraft.

This would be the largest order in the Group’s history, according to Group CEO Ben Smith, and would be used to renew and extend the fleets of KLM and Transavia.

KQ is also facing stiff competition from neighbouring Ethiopian Airlines, the largest carrier in Africa with nearly 130 aircraft in its fleet, with more on the way, according to management.

Rwanda's RwandAir is also eyeing a pie of the regional and international routes, buoyed by investment from Middle Eastern giant Qatar Airways, which in February last year announced a 49 per cent acquisition (stake) in the carrier.

Qatar Airways and the Rwandan government have also entered into an investment partnership whereby the Middle Eastern carrier agreed to take a 60 per cent stake in the new Bugesera airport (east of Kigali), a project worth nearly $1.3billion(Sh140 billion).

This is expected to put pressure on the Jomo Kenyatta International Airport, KQ's hub, which has for decades enjoyed the hub status for the East African region.

While KQ has hired UK consultancy firm, Steer Group, to guide it on the most viable turnaround strategy options in the face of deepening financial losses and depressed passenger numbers, it is facing stiff competition from the region and international carriers, industry trends indicate.

CEO Allan Kilavuka however insists the national carrier remains strong in business, banking on innovations to grow out of its losses, which dipped to Sh36.2 billion in the year to December 2020, the worst in history.

“We are looking at new ways of doing things, that will help get us out of where we are today,” Kilavuka told journalists in Nairobi last week.

Putting in place a viable turnaround strategy is one of the conditions for the Sh255 billion loan to the Kenya government from the International Monetary Fund(IMF) in March.

It pilots, through their lobby group–Kenya Airline Pilots Association (KALPA) have argued that a shrinkage of KQ will send the airline down, making it difficult to bounce back.

Industry trends shows in Africa, market share lost is hardly recovered, evidenced by Nigerian Airways, Cameroon Airlines, Air Zimbabwe, Air Tanzania, Air Uganda, and, most recently, South African Airlines which have either downsized or ceased operations.

“The net effect of these attempts to reinvent themselves has led to sinking massive amounts of capital in the attempt to recover what was once their market share. Therefore, KQ should not engage in this race to the bottom that has proven to cripple the African airline industry,” KALPA general secretary, Captain Muriithi Nyagah, says.

The Senate and Parliamentary Transport Committees have noted a radical and fresh approach is needed in countering the downward spiral that could lead to a total collapse of the airline.

Last year, the government injected at least Sh11 billion to sustain KQ operations, providing a much needed cushion from effects of the pandemic which saw it ground operations for about six months.

The airline took the debt in two tranches of Sh5 billion followed by Sh6 billion with the first loan being channeled towards engine overhauls of its Embraer 190 fleet.

KALPA has however blamed poor management for the airline's losses which started before the pandemic.

They have called for aviation experts and individuals from key sectors of the economy to take up KQ's board if the much needed turnaround is to be realised.