KQ ditches buying Dreamliners in favour of leasing the planes

Corporate News

The Kenya Airways Dreamliner B787 on the tarmac at the Jomo Kenyatta International Airport in Nairobi. PHOTO | FILE 

By VICTOR JUMA, vjuma@ke.nationmedia.com

In Summary

• KQ had announced it would borrow an additional $1 billion (Sh94 billion) in the year ended March to finance the purchase of more aircraft including the Dreamliners.
• The shift to leasing is expected to reduce the airline’s debt load and overall capital expenditure, easing pressure on the loss-making airline.

Kenya Airways (KQ) has ditched a plan to buy three Boeing B787-8 Dreamliners and will instead lease them from an Irish firm, a move aimed at boosting the airline’s constrained cash flow.

The aircraft will be bought by AWAS Aviation Trading Limited, which will shoulder the burden of financing their purchases.

The first of the three Dreamliners was delivered in Nairobi yesterday, with the remaining two set to be received in June and July.

READ: KQ signs leaseback deal for last three 787-8 Dreamliners

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It is the seventh of the nine Dreamliners ordered by Kenya Airways under its aggressive expansion plan that has significantly raised its capital expenditure at a time when operational challenges have hurt its revenue growth.

KQ had announced it would borrow an additional $1 billion (Sh94 billion) in the year ended March to finance the purchase of more aircraft including the Dreamliners.

The shift to leasing is expected to reduce the airline’s debt load and overall capital expenditure, easing pressure on the loss-making airline.

Signing the deal, Kenya Airways’ chief executive Mbuvi Ngunze said the transaction would be beneficial to the company’s balance sheet as it seeks to improve its liquidity.

“Given our current financing, we must be prudent in finding an 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.

“AWAS has proven to be a valuable, responsive and flexible business partner and we are thankful for their support. This means we meet our guests’ expectations with the youngest fleet in Africa as per our promise,” Mr Ngunze said.

AWAS is a global leader in commercial aircraft sale and leasing with a portfolio of over 300 aircraft for customers around the world. For KQ, the move to lease the additional aircraft is seen as a bid to stem losses that would have worsened had the airline continue with its multi-billion-shilling purchases of the Dreamliners.

Dreamliners have an average list price of $225 million (about Sh21 billion) each, but are often available at discounts in bulk purchases. Kenya Airways ordered nine of the planes in 2006 as part of the bold and now controversial ‘Project Mawingu’ expansion plan and had already taken delivery of the first six.

The company made a net loss of Sh10.5 billion in the half year ended September, reversing a net a profit of Sh384 million a year earlier. The national carrier said its earnings were affected by slow growth in passenger numbers despite investments in new aircraft, as it handled 2.1 million passengers over the period — an 8.2 per cent increase from 1.94 million last year.

Mr Ngunze said the suspension of some flights to two West African routes hit by the Ebola epidemic and insecurity at the Coast also “dampened” performance.