The following article by Kenya Airways CEO Mbuvi Ngunze first appeared on the Print edition of the Daily Nation on Saturday July 9 2016 and we thought it would make a good a read for investors following this counter…
Mbuvi Ngunze;
An article in the Saturday Nation on July 2 by Roy Gachuhi contains false and ill-informed assertions regarding Kenya Airways and certain strategic decisions taken by management to turn around the airline.
This article, which touches on a number of issues relating to our aircraft inventory, labour relations and financials, among others, is replete with conjecture that would appear contrived to advance an ulterior agenda.
As I have stated before (see article in the Daily Nation, March 7, 2016) the three focus areas of our turnaround strategy are:
Closing the profitability gap, reworking our business model and creating a sustainable financial structure for the airline.
The author grossly misrepresented the true position regarding our Boeing 777 fleet. Moreover, he did not seek Kenya Airways’ management’s position on the matter, instead relying on hearsay, and internal emails quoted out of context.
The decision to sell or lease some of our aircraft was approved by the board after a rigorous analysis by management of the financial and legal complexities involved. It was in our view cheaper to ground the aircraft, than to operate them at a loss. Consequently, we grounded the aircraft as part of fleet rationalisation, a key plank of our turnaround strategy dubbed, “Operation Pride”.
In January, we sold two Boeing 777-200 aircraft to US-based Omni Air International and not at the price quoted in the article. In March, we announced the sub-lease of three B777-300 aircraft to Turkish Airlines, which have now all been delivered to them. I am not at liberty to disclose the finer details of these transactions as they are confidential. Let me just say there exists a market out there for these types of aircraft.
The author zeroed in on the two remaining Boeing 777-200ER aircraft and their state. The truth of the matter is that we continue to service them and seek prospective buyers. It must, however, be understood that selling and leasing aircraft is a complex affair lasting months or even years. Disposing of an aircraft is not like selling a car.
Also Read; ODUNDO; How NSE Will handle Derivatives Trading
There are many financial and legal intricacies involved.
Some decisions we take may be unpopular, but have to be made in the wider interest of the airline and its sustainability. Fleet rationalisation is one of them. We have to build a leaner and more efficient airline.
The sale and sub-lease of aircraft is driven by the need to close our gap in profitability and rapidly reduce our costs and debt. Already, these actions have reduced our fleet cost by about $7 million from this month, thus significantly improving the airline’s liquidity.
Another false and rather alarmist claim in the article relates to the Boeing 787-8 Dreamliner. The author implies that our Dreamliner fleet is “stretched” and, therefore, not properly maintained. This is not true. Kenya Airways puts the safety of its passengers first and this we cannot compromise for whatever reason. Safety is our licence to operate.
The other issue the article brings up is the “idle” B777 staff. The true position is that the airline sought to redeploy the B777 pilots to other airlines, but these proposals were rejected by the pilots’ association. We are, however, close to agreeing a way forward with the union on this matter as it is in our mutual interest.
We announced in November that our operating results improved significantly, but were dragged down by the strong dollar, higher borrowing costs and the fuel hedge positions. We will soon be announcing results for the financial year ended March 31 and provide further details on the progress made in turning around the airline.
In conclusion, let me reassure our shareholders and other stakeholders that “Operation Pride” is on track and will return to profitability and financial stability in due course. This is a marathon, which we must endure and win!
