National carrier, Kenya Airways says its restructuring plan is on course and expects to return to profitability in the next two years.
Outlining its plane leasing scheme, the airline known internationally as KQ, said it is executing a number of cost-cutting measures and revenue growth strategies under project 'Kifaru'.
The partially state owned airline has posted losses 10 years in a row and has been surviving on state bailouts since the Covid-19 pandemic.
In August, it reported a Sh9.8 billion loss, albeit an improvement from the Sh11.48 billion loss it recorded in the same period a year earlier.
It booked a further Sh5.3 billion loss on hedged foreign exchange differences, driving its total comprehensive loss to Sh14.9 billion, a worse showing than the Sh9.8 billion reported in a similar period in 2021.
KQ tapped US-based advisory firm Seabury Consulting in early February to advise it on financial restructuring and a revival plan amid continued losses that have seen the company rely on State bailouts to keep operating.
Yesterday, the carrier said it expects to cut jet-leasing costs by more than a third.
Negotiations with lessors have so far led to a 19 per cent cut in overall rental costs.
In a statement signed by its chairman Michael Joseph, KQ detailed its aircraft leasing model that focuses on finance and operating lease.
So far, it has 18 aircrafts under the finance lease and 17 under operation lease.
Financial leases are long-term with an option to purchase the aircraft at the end of the lease agreement.
Because of the complexity and size of the lease, financiers typically prefer to use Special Purpose Vehicles (SPVs) to facilitate the finance leasing transaction.
In 2010, KQ sought a financing facility to facilitate the acquisition of six Boeing 787 Dreamliners, 1 Boeing 777-300ER and 1 GEnx spare engine.
As a result, a Special Purpose Vehicle (SPV), Tsavo Aircraft Financing LLC, was incorporated by the financier JP Morgan Chase Bank, Citi Bank NA, and Afrexim Bank.
It also sought another facility to acquire ten (10) Embraer E190 aircraft. Samburu Limited, another SPV, was incorporated to borrow the funds from a syndicate headed by Standard Chartered Bank to acquire the Ten (10) Embraer E190 aircraft.
Other partners in the syndicate included China Development Bank, Trade Development Bank, Nedbank Int’l Ltd and Afrexim Bank.
Operating leases on other hand are legal agreements between two parties, where the lessor agrees to provide the airplane to the lessee for a fixed time period in exchange of regular payments called rentals or lease payments.
KQ deals with Dubai Aerospace Enterprise (DAE), AERCAP, Bank of China (BOC) Aviation, China Development Bank (CDB) Leasing and Deucallon as lessors.
Others are Macquarie, Aviation Capital Group (ACG), Goshawk, Nordic Aviation Capital (NAC), Azzora, Chorus Aviation, NAC and Montrose.
Speaking during the firm's AGM in July, KQ boss Allan Kilavuka said the airline has made progress in its talks with most of its aircraft lessors and expected to close the negotiations soonest.
“We are also working on the reduction of other costs such as distribution and ground handling costs by dealing with the inefficiencies in these areas,” he said.
He said the airline will not cut its employees in the restructuring plan.
Joseph said through project Kifaru, the airline will address the ‘soft’ issues around culture shift that is critical for a sustainable transformation.
''This plan has been discussed and endorsed by all the key stakeholders. Key achievements so far include optimisation of the network by reviewing destinations and frequencies and assets utilisation,'' he said in the statement.
