Loss making KQ spending $142m annually on leasing aircraft, report shows


Geza Ulole

Geza Ulole

JF-Expert Member
Joined
Oct 31, 2009
Messages
17,697
Points
2,000
Geza Ulole

Geza Ulole

JF-Expert Member
Joined Oct 31, 2009
17,697 2,000
Kenya Airways spending $142m annually on leasing aircraft, report shows
MONDAY APRIL 15 2019


Transport Principal Secretary Esther Koimet (left) and KQ CEO Sebastian Mikosz at a meeting on the proposed plan to manage Kenya Airports Authority on February 26, 2019. PHOTO | DIANA NGILA | NMG

In Summary
  • The servicing loans accounts for up to 11 per cent of the airline’s operating costs—way above the global average of five per cent.
  • KQ also told parliament that $53 million of the total amount covers aircraft depreciation costs, leaving $89 million for actual servicing of the leasing costs.
  • KQ has in the past two years revealed that it spent $170 million to clear its tax obligations with Kenya Revenue Authority.

By ALLAN OLINGO
More by this Author

Troubled national carrier Kenya Airways spends a whopping $142 million annually to service the onerous leasing contracts it signed with financiers to acquire 20 aircraft, a new report shows.

The confidential report, which was submitted to the Transport committee of the Kenyan parliament, means servicing loans accounts for up to 11 per cent of the airline’s operating costs — way above the global average of five per cent.

Kenya Airways, which is struggling to rise from the depths of historic corporate loss-making, also told parliament that $53 million of the total amount covers aircraft depreciation costs, leaving $89 million for actual servicing of the leasing costs.

For the first time last week, Kenya Airways revealed that 11 firms including Bank of China Aviation, China Development Bank Leasing, Nordic Aviation Capital, GE Capital Aviation Services and Aviation Capital Group bankrolled the carrier’s leasing of 20 aircraft, which is half its fleet.

KQ, as the Kenyan carrier is popularly known, also named individuals behind its controversial ownership of Boeing 787, 737-800 and Embraer 190 aircraft through two privately-owned entities Tsavo and Samburu.

The carrier’s chief executive Sebastian Mikosz, said Samburu is owned by Karen Karita Ellerbe, Jonathan David Herrick, Evert Brunekreef and Christopher Bryan, while Tsavo Aircraft Financing LLC is owned by the Wilmington Trust Company registered in the US.

And in a revelation meant to anchor its role as the key tenant at Nairobi’s Jomo Kenyatta International Airport, KQ disclosed that it pays $650 million annually to the Kenya Airports Authority—for use of the airport as its hub.

Landing fees
That amount does not include the $160 million it pays KAA in annual landing fees, $4 million in building and utilities rents and $2 million in concession fees.

“Furthermore, KQ pays KAA the Airport Pax Service Charge [APSC] that is dependent on the number of passengers departing from Kenya with the airline.

“In KQ’s case, that fee amounts to $430 million annually, accounting for approximately 50 per cent of JKIA’s total revenue from APSC per year,” the airline says in its report to parliament.

KQ has partly argued that should its proposal to run JKIA stand, travellers would see a drop in ticket costs in line with the reduction in the service charge, making it competitive in its operating hub.

But the revelation also means that KQ accounts for half of JKIA revenues, and KAA would be the biggest casualty should the heavy debt burden bring the airline down.

KQ has in the past two years revealed that it spent $170 million to clear its tax obligations with Kenya Revenue Authority, but carries security guarantees from Exim bank for six of its Boeing 787 Dreamliner’s, one Boeing 77-300 aircraft and one GEnx Engine.

Airport management
The airline has argued that KAA is currently running the airport on a faulty traditional aeronautical to non-traditional revenue structure of 81:19 compared with well-managed international airports whose revenues are split at a ratio of 60:40.

Landing fees, Airport Pax Service Charge and others make the traditional aeronautical revenues while duty-free shops, concessions paid by airport operators, ground handlers and fuel providers constitute non-aeronautical revenues.

This means that under the JKIA revenue structure, 81 per cent of KAA revenues come from aeronautical services including landing charges, air passenger charges, parking charges, airlift fees, fuelling revenue and fuelling up-lift fee—partly contributing to Kenya Airways’ high cost base.

“It is crucial to grow non-aeronautical revenue in order to balance the revenue streams and cut the cost of core aeronautical services, making the airport more competitive to attract more traffic,” said Kenya Airways.

KQ told parliament that it expects to start reaping the benefits of fuel hedging this month, as the fuel curve projections point to an increase in prices.

The carrier also said that it wholly owned the other half of its fleet, but only three Boeing 737-300s have been fully paid for.

Kenya Airways documents show that six Boeing 787 Dreamliner aircraft and one Boeing 777-300 financed by Citi Bank, Cairo headquartered Afrexim Bank and JP Morgan banks are still on loan.

Another 10 Embraer 190 financed by Standard Chartered Bank International and Afrexim Bank are also still on loan.

Kenya Airways also revealed that its captains are paid some of the highest salaries at Ksh1.6 million a month, while its First Officers take home Ksh900,000 ($9,000) a month.

The airline pays flight operators Ksh225,000 ($2,250) while ground service crew, technical, commercial and cargo employees take home Ksh150,000 ($1,500).

“A KQ captain earns on average 11 times more than the average employee in other high salary sectors, and 29 times more than the private sector average....While significant salaries of the pilots are not unusual in the industry due to influential trade unions and political pressure on national careers, remuneration of the Kenya Airways’ pilots is substantial even in comparison with their peers from wealthy economies,” the airline notes.

But despite KQ’s spirited effort to defend its proposed takeover of JKIA management, Kenya’s Transport ministry officials appeared to beat a retreat.

“Following concerns that have been raised by the public, we are now exploring other options of delivering the objectives of the government to consolidate our aviation sector.

“Once an agreed option has been identified we will submit the same to the Cabinet for approval,” Kenya’s transport cabinet secretary James Macharia said.

 
K

Kanya

New Member
Joined
Feb 21, 2019
Messages
4
Points
20
K

Kanya

New Member
Joined Feb 21, 2019
4 20
Props Alan as always.. A good meaty article.
Kq is actually making money, the problem in my view is KAA which instead of improving on the other revenue streams is busy milking kq dead.
Am convinced kq should take over jkia especially, use those stupid fees they've been paying to lease or buy/ grow their fleet. In short consolidate, lower operational costs and everyone in the industry is happy. A One Gerald mahinda(don't now he went) is very good at that..
 
K

kennedy0000

JF-Expert Member
Joined
Apr 14, 2012
Messages
2,592
Points
2,000
K

kennedy0000

JF-Expert Member
Joined Apr 14, 2012
2,592 2,000
So, for $142 million a year we get 20 aircraft.
$142 million cannot even buy you a single dreamliner. That's not a bad deal.
No sensible airline should be buying aircraft, unless there is oil money.

That said, KAA is draining KQ.
If KQ were to collapse, no foreign airline will make JKIA their hub. JKIA could lose 3 - 5 million passengers overnight.
Either way KAA would lose the money.

If they will not let KQ manage JKIA, then they should subsidize all those airport charges.
 
Geza Ulole

Geza Ulole

JF-Expert Member
Joined
Oct 31, 2009
Messages
17,697
Points
2,000
Geza Ulole

Geza Ulole

JF-Expert Member
Joined Oct 31, 2009
17,697 2,000
Only a stupid person can support a leasing agreement that drains 11% of a yearly revenue as repayment!
 
Mkikuyu- Akili timamu

Mkikuyu- Akili timamu

JF-Expert Member
Joined
Feb 16, 2018
Messages
3,081
Points
2,000
Mkikuyu- Akili timamu

Mkikuyu- Akili timamu

JF-Expert Member
Joined Feb 16, 2018
3,081 2,000
So, for $142 million a year we get 20 aircraft.
$142 million cannot even buy you a single dreamliner. That's not a bad deal.
No sensible airline should be buying aircraft, unless there is oil money.

That said, KAA is draining KQ.
If KQ were to collapse, no foreign airline will make JKIA their hub. JKIA could lose 3 - 5 million passengers overnight.
Either way KAA would lose the money.

If they will not let KQ manage JKIA, then they should subsidize all those airport charges.
1) ATCL has no planes, they do not have any depreciating asset in form of an aircraft on its balance sheet. They are all leased..
What ATCL does not do is lease aircraft from ghost companies in the jersey islands..The lease cheaply from their own government
2)KAA can actually make more money in absence of KQ which upto now has 4bn unpaid fees..Should KQ cease to exist, JKIA is a major hub and Many Airlines would bid to be the hub's main carrier..Ethiopian would certainly want that hub, and possibly Rwandair Combined effort with ATCL
3)KQ is a private company, Gok had no business rescuing nakumatt and should have none with KQ..This is the norm in capitalist countries, even finland had NOKIA,a global brand which their Government let it sink despite their gov owning very many shares
 
K

kennedy0000

JF-Expert Member
Joined
Apr 14, 2012
Messages
2,592
Points
2,000
K

kennedy0000

JF-Expert Member
Joined Apr 14, 2012
2,592 2,000
1) ATCL has no planes, they do not have any depreciating asset in form of an aircraft on its balance sheet. They are all leased..
What ATCL does not do is lease aircraft from ghost companies in the jersey islands..The lease cheaply from their own government
2)KAA can actually make more money in absence of KQ which upto now has 4bn unpaid fees..Should KQ cease to exist, JKIA is a major hub and Many Airlines would bid to be the hub's main carrier..Ethiopian would certainly want that hub, and possibly Rwandair Combined effort with ATCL
3)KQ is a private company, Gok had no business rescuing nakumatt and should have none with KQ..This is the norm in capitalist countries, even finland had NOKIA,a global brand which their Government let it sink despite their gov owning very many shares
A government that spends hundreds of millions of $ to buy planes, when the country is languishing in poverty, should be toppled.
The only reason ATCL leases 'cheaply' is because you have a populist dictator only interested in being lavished with praises and not making financial sense.
KQ lessors are big companies, with the smallest having a fleet of 151 planes.

2. For someone who claims to be an economist, you have no idea how airline hubs work. JKIA is a hub for only two major airlines. KQ and Fly 540.
Unless you are an airline with hundreds of planes like Delta, you only have one hub or if I use a term you might understand, headquarter.
Why would Ethiopian or Rwandan make JKIA their headquarters when they have their own countries?
When KQ picks passengers from their different African routes, most of these flights must first fly through JKIA. The same way Ethiopian first flies passengers to Bole, or how Emirates passes through Dubai on its way to London.
If KQ were to collapse today, KAA would lose 50% of its revenue instantly.

3. When did Nokia sink? Are you living in an alternative universe? Last year it had revenues of almost $30 billion.
They just stopped making phones because Apple defeated them, like they did to everyone else in the market. Pumping money into Nokia does not mean they will make a better or more popular phone than Apple.
If that was the case, and Nokia had no resources, I'm sure the Finland government would have gladly helped.
The same way capitalist US rescued its banks, automotive industry etc in 2009.
The same way capitalist UK has been subsidizing their privately run railway service for decades.

Companies that have national significance should be saved if possible. Whether they are government owned, public or private, they are the drivers of the GDP.
Samsung is not a government-owned company, but it controls 14% of South Korea gdp. Is that a company that can be left to 'sink'.
 
K

kennedy0000

JF-Expert Member
Joined
Apr 14, 2012
Messages
2,592
Points
2,000
K

kennedy0000

JF-Expert Member
Joined Apr 14, 2012
2,592 2,000
Only a stupid person can support a leasing agreement that drains 11% of a yearly revenue as repayment!
The planes are the business. There would be no revenue without the planes.
What percentage of revenue do you think shops or supermarkets spend on rent of premises?

11% for the thing making you money is a steal.
 
joto la jiwe

joto la jiwe

JF-Expert Member
Joined
Sep 4, 2017
Messages
8,459
Points
2,000
joto la jiwe

joto la jiwe

JF-Expert Member
Joined Sep 4, 2017
8,459 2,000
A government that spends hundreds of millions of $ to buy planes, when the country is languishing in poverty, should be toppled.
The only reason ATCL leases 'cheaply' is because you have a populist dictator only interested in being lavished with praises and not making financial sense.
KQ lessors are big companies, with the smallest having a fleet of 151 planes.

2. For someone who claims to be an economist, you have no idea how airline hubs work. JKIA is a hub for only two major airlines. KQ and Fly 540.
Unless you are an airline with hundreds of planes like Delta, you only have one hub or if I use a term you might understand, headquarter.
Why would Ethiopian or Rwandan make JKIA their headquarters when they have their own countries?
When KQ picks passengers from their different African routes, most of these flights must first fly through JKIA. The same way Ethiopian first flies passengers to Bole, or how Emirates passes through Dubai on its way to London.
If KQ were to collapse today, KAA would lose 50% of its revenue instantly.

3. When did Nokia sink? Are you living in an alternative universe? Last year it had revenues of over $30 billion.
They just stopped making phones because Apple defeated them, like they did to everyone else in the market. Pumping money into Nokia does not mean they will make a better or more popular phone than Apple.
If that was the case, and Nokia had no resources, I'm sure the Finland government would have gladly helped.
The same way capitalist US rescued its banks, automotive industry etc in 2009.
The same way capitalist UK has been subsidizing their privately run railway service for decades.

Companies that have national significance should be saved if possible. Whether they are government owned, public or private, they are the drivers of the GDP.
Samsung is not a government-owned company, but it controls 14% of South Korea gdp. Is that a company that can be left to 'sink'.
May you please provide evidence/link which shows that Nokia last year made $30 profit?, my friend is interested to know if NOKIA is still alive, he was very much in love with NOKIA.

Sent using Jamii Forums mobile app
 
Mkikuyu- Akili timamu

Mkikuyu- Akili timamu

JF-Expert Member
Joined
Feb 16, 2018
Messages
3,081
Points
2,000
Mkikuyu- Akili timamu

Mkikuyu- Akili timamu

JF-Expert Member
Joined Feb 16, 2018
3,081 2,000
A government that spends hundreds of millions of $ to buy planes, when the country is languishing in poverty, should be toppled.
The only reason ATCL leases 'cheaply' is because you have a populist dictator only interested in being lavished with praises and not making financial sense.
KQ lessors are big companies, with the smallest having a fleet of 151 planes.

2. For someone who claims to be an economist, you have no idea how airline hubs work. JKIA is a hub for only two major airlines. KQ and Fly 540.
Unless you are an airline with hundreds of planes like Delta, you only have one hub or if I use a term you might understand, headquarter.
Why would Ethiopian or Rwandan make JKIA their headquarters when they have their own countries?
When KQ picks passengers from their different African routes, most of these flights must first fly through JKIA. The same way Ethiopian first flies passengers to Bole, or how Emirates passes through Dubai on its way to London.
If KQ were to collapse today, KAA would lose 50% of its revenue instantly.

3. When did Nokia sink? Are you living in an alternative universe? Last year it had revenues of over $30 billion.
They just stopped making phones because Apple defeated them, like they did to everyone else in the market. Pumping money into Nokia does not mean they will make a better or more popular phone than Apple.
If that was the case, and Nokia had no resources, I'm sure the Finland government would have gladly helped.
The same way capitalist US rescued its banks, automotive industry etc in 2009.
The same way capitalist UK has been subsidizing their privately run railway service for decades.

Companies that have national significance should be saved if possible. Whether they are government owned, public or private, they are the drivers of the GDP.
Samsung is not a government-owned company, but it controls 14% of South Korea gdp. Is that a company that can be left to 'sink'.
1) A responsible Government always invests..Tz Taxes are invested in Planes that can be leased to anyone not just ATCL. And for that matter, you will never see lack of drugs in Tz hospitals, children learning under trees, people living like animals in slums or people getting food aid.
2)JKIA business is driven by passangers not KQ, if KQ vanishes, passagers remain because nairobi is a capital city with alot of contact with international companies, UN etc. Ethiopian would be very happy to own 2 hubs as they seek to dominate African market
3)Yes, responsible governments let private companies sink..Japan let SONY die off..If samsung fails to respond to the market, S.KOREA will let them sink..Canada let the mighty blackberry die too..Public money should never be used to rescue private business
 
K

kennedy0000

JF-Expert Member
Joined
Apr 14, 2012
Messages
2,592
Points
2,000
K

kennedy0000

JF-Expert Member
Joined Apr 14, 2012
2,592 2,000
And for that matter, you will never see lack of drugs in Tz hospitals, children learning under trees, people living like animals in slums or people getting food aid.
We'll never see because Supremo has your media by the balls.
 
K

kennedy0000

JF-Expert Member
Joined
Apr 14, 2012
Messages
2,592
Points
2,000
K

kennedy0000

JF-Expert Member
Joined Apr 14, 2012
2,592 2,000
JKIA business is driven by passangers not KQ, if KQ vanishes, passagers remain because nairobi is a capital city with alot of contact with international companies, UN etc. Ethiopian would be very happy to own 2 hubs as they seek to dominate African market
A big chunk of the passengers at JKIA are just passing by.
The only reason majority of them are passing by JKIA is because of KQ. If they took Ethiopian, they would pass by Bole. If they took Emirates, they would pass by Dubai.
Ethiopia is too small to operate 2 hubs. Even in a situation where they find themselves needing another hub, it wouldn't be Nairobi. It would have to be in another region. Most likely West Afica.
 
K

kennedy0000

JF-Expert Member
Joined
Apr 14, 2012
Messages
2,592
Points
2,000
K

kennedy0000

JF-Expert Member
Joined Apr 14, 2012
2,592 2,000
1) A responsible Government always invests..Tz Taxes are invested in Planes that can be leased to anyone not just ATCL.
Lol. If that was an investment, your government should be leasing out to ATCL at market rates.
That said, buying planes is not even in the top 1000 best investments.
 
joto la jiwe

joto la jiwe

JF-Expert Member
Joined
Sep 4, 2017
Messages
8,459
Points
2,000
joto la jiwe

joto la jiwe

JF-Expert Member
Joined Sep 4, 2017
8,459 2,000
Lol. If that was an investment, your government should be leasing out to ATCL at market rates.
That said, buying planes is not even in the top 1000 best investments.
The aim of the government is not just a profit alone, Tourism, investments and improvement of business environment so as to get the so called spill over effects. Remember planes cost only $800M, but SGR costs $3.9B so far, and Rufiji dam costs $3B.

Sent using Jamii Forums mobile app
 
K

kennedy0000

JF-Expert Member
Joined
Apr 14, 2012
Messages
2,592
Points
2,000
K

kennedy0000

JF-Expert Member
Joined Apr 14, 2012
2,592 2,000
)Yes, responsible governments let private companies sink..Japan let SONY die off..If samsung fails to respond to the market, S.KOREA will let them sink..Canada let the mighty blackberry die too..Public money should never be used to rescue private business
Just because SONY is no longer the only TV in town, doesn't mean the company died. Last year SONY made record profits of over $2 billion. It is a big technology and entertainment behemoth.

Blackberry was beaten hands down by Apple. It did not fail because of lack of revenue.
Canada pumping money would not have saved it.

And no way Korea is letting Samsung fail. Together with Hyundai, LG and other family controlled behemoths, they employ almost half of all South Koreans.
They fail and South Korea unemployment rate will drop below LDC Tanzania's.
 
K

kennedy0000

JF-Expert Member
Joined
Apr 14, 2012
Messages
2,592
Points
2,000
K

kennedy0000

JF-Expert Member
Joined Apr 14, 2012
2,592 2,000
Your fellow Kenyans and other neighbouring countries are flocking to Tanzania for Cancer and Heart Treatment.

Sent using Jamii Forums mobile app
Unless Tanzania is another name for India.

Least doctor to patient ratio in the region.
Highest infant mortality rate
Lowest life expectancy.

Can you guess the country?
No need to. It's LDC Tanzania.
 
K

kennedy0000

JF-Expert Member
Joined
Apr 14, 2012
Messages
2,592
Points
2,000
K

kennedy0000

JF-Expert Member
Joined Apr 14, 2012
2,592 2,000
The aim of the government is not just a profit alone, Tourism, investments and improvement of business environment so as to get the so called spill over effects. Remember planes cost only $800M, but SGR costs $3.9B so far, and Rufiji dam costs $3B.

Sent using Jamii Forums mobile app
KQ leases 20 planes for just over half the price of a dreamliner.
Leasing 30 planes would cost about the same as one dreamliner.

If a government is interested in tourism, and not populism, the choice is clear.
 
joto la jiwe

joto la jiwe

JF-Expert Member
Joined
Sep 4, 2017
Messages
8,459
Points
2,000
joto la jiwe

joto la jiwe

JF-Expert Member
Joined Sep 4, 2017
8,459 2,000
Unless Tanzania is another name for India.

Least doctor to patient ratio in the region.
Highest infant mortality rate
Lowest life expectancy.

Can you guess the country?
No need to. It's LDC Tanzania.

Na bado, mwaka huu wakenya wengi watavuka mpaka kuja Bongo.

Sent using Jamii Forums mobile app
 
joto la jiwe

joto la jiwe

JF-Expert Member
Joined
Sep 4, 2017
Messages
8,459
Points
2,000
joto la jiwe

joto la jiwe

JF-Expert Member
Joined Sep 4, 2017
8,459 2,000
KQ leases 20 planes for just over half the price of a dreamliner.
Leasing 30 planes would cost about the same as one dreamliner.

If a government is interested in tourism, and not populism, the choice is clear.
I have given you nearly five reasons, just to repeat
1)To boast tourism
2)To attract more FDI
3) To improve investment environment
4) To improve domestic air transport
5) It is National carrier/Flag bearer
6)To make profit


Sent using Jamii Forums mobile app
 
pingli-nywee

pingli-nywee

JF-Expert Member
Joined
Sep 16, 2015
Messages
7,800
Points
2,000
pingli-nywee

pingli-nywee

JF-Expert Member
Joined Sep 16, 2015
7,800 2,000
Napenda mnavojiumbua nyinyi wenyewe mkiongozwa na mleta mada Geza Ulole. Taarifa ya mada hii inasema kwamba KQ wana'lease' ndege 20, ila KQ wana'operate' ndege 40. Hizo zingine 20 zinatoka wapi??? Maanake malofa kama Mkikuyu- Akili timamu na mwenzake joto la jiwe huwa hawakomi kutueleza humu kila uchao kwamba KQ wana miliki ndege tatu tu. Hahaha! I like this!
 

Forum statistics

Threads 1,285,935
Members 494,834
Posts 30,879,477
Top