Kenya Airways clears the air

Sections of the Kenyan social media have made it their favorite pastime to tear into Kenya Airways at every given opportunity in recent months.

Sections of the Kenyan social media have made it their favorite pastime to tear into Kenya Airways at every given opportunity in recent months. Often met with stoic silence, the airline has decided to respond, long overdue in the view of many of their faithful passengers, and the following statement was published yesterday on the airlineโ€™s facebook page:

Start quote:

All businesses have challenges, more so in our aviation industry, which is cyclical in nature and fraught with many risks. These include fuel price volatility, intense competition and more recently the threat of terrorism and epidemics that have adversely impacted global travel. There is also political instability, natural disasters and an increasingly tight regulatory environment and KQ is not isolated from any of these.

KQ has expanded its global footprint across multiple jurisdictions flying to 52 destinations. As a global airline, we are governed by stringent international aviation rules that we must adhere to.

Strong consumer activism in some markets like the European Union (EU) has imposed high costs of operations in cases of schedule interruptions.

But it has not always been doom and gloom. Over the last decade, Kenya Airways worked hard to successfully shed the image of an ailing airline dependent on government lifeline.

Since it was privatised in the late 1990s, the airline grew rapidly, lifted by strong fundamentals and embracing a culture of competitiveness and innovation. Before the current spate of challenges, KQ was one of the most profitable airlines even earning the โ€˜Most Respected Company in East Africaโ€™ accolade.

Are we in debt? Yes we are. Is this normal for airlines? Most certainly. The question is one of balance for both long term and short term debt. Long term debt is the norm for financing asset acquisition together with equity. In the short term, we are experiencing a tight liquidity position driven by our business environment.

Were we too ambitious in our plans? Only time will tell. KQ from 2002 to 2011 grew from a turnover of Sh25 billion to over Sh100 billion, in the same period. It only made a loss in 2009. Against this backdrop, the Board embarked on a second phase of growth and renewal with mixed results thus far.

Operationally, we have seen significant improvements over the last two years both in on time performance and service. In the last month though, we have had significant disruptions to our schedule integrity which has regrettably impacted our loyal customers for two reasons.

Firstly, the change of schedule due to the runway closure and attendant internal adjustments we have had to make.

Secondly, we have had labour relations issues with some of our pilot community which in some instances has led to last minute flight cancellations or delays.

So, whereas KQ may today be grappling with challenges, what is important is that we stay focused in delivering on the wider promise. What matters most is the measures instituted to put the business on a recovery path and ultimately on a sound footing.

End quote

Critics apart, the airline has built a growing pool of faithful passengers over the years who stick to flying with Kenya Airways, taking an occasional delay in their stride, appreciating the inflight service, the use of a fleet of modern aircraft, and the move into a brand new terminal in Nairobi, now exclusively used by Kenya Airways and their SkyTeam partner airlines. In particular, multiple daily connections within the East African Community to all the major regional airports and also into the airlineโ€™s continental and intercontinental network have made sure that Kenya Airways remains one of Africaโ€™s most popular airlines.

Kenya Airways clears the air

Kenya Airways yesterday went on record to nip mainstream media allegations in the bud about cancelled aircraft orders.

Kenya Airways yesterday went on record to nip mainstream media allegations in the bud about cancelled aircraft orders.

According to the airline, the rumors that it has cancelled the remaining 3 Boeing 787 Dreamliner orders is false. The mainstream media slept when the 7th Dreamliner was delivered over the weekend, and when they caught on to the news, they then wallowed in their comfort mud suggesting that the airline was in talks with either Emirates of Qatar Airways for a financial bailout.

While not asleep, they got that one wrong, too, and no blame should be attributed to them for reporting on aviation issues is a complex business which requires knowledge, insight and mainly good inside contacts, something perhaps difficult to attain when merely trying oneโ€™s hand on aviation before moving on to other pastures.

The airline issued a statement, shared with this correspondent late yesterday evening and it reads as follows:

Start quote:

Kenya Airways has entered into a Sale and Lease back transaction for the three B787-8 Dreamliners due to be delivered this year, with AWAS Aviation Trading Limited, a leasing company based in Ireland.

The three B787-8 Dreamliners, to be delivered in May, June and July 2015 will be leased through AWAS rather than financed on the balance sheet of Kenya Airways.

AWAS is a global leader in commercial aircraft sale and leasing with over a portfolio of over 300 aircraft for customers around the world.

Signing the deal, Kenya Airwaysโ€™ Group Managing Director and Chief Executive Officer Mbuvi Ngunze said the transaction will be beneficial to the companyโ€™s balance sheet as it seeks to improve its liquidity.

โ€œGiven our current financing, we must be prudent in finding innovative financing solution while keeping with our growth ambition. The new aircraft will be important additions to our fleet as we strive to give our guests the best experience,” he added.

โ€œAWAS has proven to be a valuable, responsive and flexible business partner and we are thankful for their support. This means we meet our guest expectations with the youngest fleet in Africa as per our promise,” Mbuvi said.

The first of the three aircrafts under this agreement arrived in Nairobi [on the 02nd of May] directly from the Boeing facility in Charleston, South Carolina, USA. This is the seventh of the nine Dreamliners ordered by Kenya Airways.

Sale and Lease Back is a practical fleet modernization avenue for many airlines across the globe.

End quote

That should put firmly to rest some of the wild allegations flying across the social media, triggered by known rumor mongers and naysayers relying on other rumor mongers for their information.

In regard to Kenya Airways being in talks with either Emirates or Qatar Airways, sources close to both airlines have categorically ruled that out, but it is a known fact in better-informed aviation circles that Kenya Airways and Etihad have held talks in the past over a range of issues aimed at closer cooperation. It was in this spirit in fact that Kenya Airways withdrew their own flights to Abu Dhabi and is now codesharing on Etihadโ€™s daily service from Abu Dhabi to Nairobi. This goes even further as Kenya Airways offers in fact extended codeshared routes from Nairobi into their regional network where besides partners KLM/Air France even an EY flight number is shown.

Etihadโ€™s own expansion strategy is well known in aviation circles and compared to other airlines a rather unique way of forming their own Etihad alliance instead of joining one of the three other main alliances, Star, Skyteam, and oneWorld. Etihad has sought and continues to seek equity participation in airlines covering certain parts of the globe, like Germanyโ€™s second largest airline Air Berlin, Air Seychelles, Jet Airways from India, Air Serbia, and Swiss-based Darwin Airline, Italyโ€™s Alitalia, Virgin Australia, and, albeit with a relatively small equity, Air Lingus.

All these airlines now cooperate closely with Etihad, not just through expanded codeshare arrangements but also using synergy effects on sales, marketing, purchasing, insurance, maintenance, and training.

Etihad has also been discussing a closer cooperation with KLM/Air France and as KLM is a major shareholder in Kenya Airways, it is entirely within the realm of possibility that these talks also included or at least featured a potential deal with Kenya Airways.

Nationality requirements on ownership are such that at least 50.1 percent of all issued Kenya Airways shares must be held by Kenyan individuals and corporate investors. That 50.1 percent threshold constitutes a red line, and any equity participation would only be possible with limited percentage holdings, unless other foreign shareholders would sell some of their shares to another investor.

A regular reliable source close to Kenya Airways has indicated, without giving any names, that indeed some exploration on options for another deep pocketed equity partner has taken place already and is apparently an ongoing process.

There is no doubt that Kenya Airways presently is lumbered with significant losses but an airline like Etihad has in the past not shied away from taking equity and bailing out airlines with solid medium- and long-term growth prospects. Successful examples for that strategy are Air Seychelles, which started turning profits from the second year of Etihadโ€™s acquisition of a 40 percent share. Air Berlin, previously also in financial dire straits, is now firmly on the road to break even after a major restructuring which was assisted by Etihad. In the German case, the unions played ball, coming to terms with the looming scenario of either consenting to restructuring or else facing major job losses or even a collapse as a worst-case scenario. That said, however, considering the almost rabid combativeness of the Kenyan aviation unions when it comes to the national airline, apparently not inflicted though on other Kenyan carriers, their entire mindset would have to change, too, before such a deal could become reality.

Returning to the fleet expansion, the same source also confirmed that a third Boeing B737-800NG SkyInterior will come online later this year as will the two remaining Dreamliners, numbers eight and nine. That should firmly put to rest that orders have been cancelled or deferred, and what matters is that the birds are flying in Kenya Airways livery and not if they are owned or leased.

About the author

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Linda Hohnholz

Editor in chief for eTurboNews based in the eTN HQ.

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