KQ to earn Sh1.4b from leasing of planes to Pakistan carrier

NAIROBI: Details are now emerging that the Pakistan government is about to seal a deal to lease three Boeing 777 from cash strapped Kenya Airways (KQ).

A section of Pakistan media reported over the weekend that Pakistan International Airlines (PIA), the national carrier, has finalised plans to take over, on lease terms, three planes from Kenya.

At the same time, a classified report seen by The Standard and presented to the Pakistan's Ministry of Finance showed that PIA is considering the deal, which will see the airline lease the three planes for a period of six years.
Loss-making Kenya Airways, partly owned by Air France-KLM, had recently announced that it was selling its assets, among them seven aircraft and a parcel of land in Embakasi as it negotiates for a loan from Afreximbank to rescue it from the cash crisis.
The carrier, which has been hit by a slump in tourism, require Sh60.6 billion bailout, according to Henry Rotich, Finance Cabinet Secretary. In this latest development, the presentation to lease the planes was made by Mr Shujaat Azeem, the head of the Pakistan Civil Aviation Authority and adviser to the country's Prime Minister, Nawaz Sharif. However, only officials from the Pakistan government were present during the presentation.

The project cost is estimated at Sh1.4 billion (1,442 PKR million, an equivalent of $13.7 million) with a cash security deposit amounting to Sh464 million (464 PKR million or $4.4 million). One US dollar is equivalent to 105 Pakistan Rupee, same as the Kenyan shilling exchange current exchange rate.

According to Abb Takk Tv, which first broke the story, the three planes would be handed over to Pakistan authorities in December. The presentation also highlighted the immediate benefits of the deal and cited that the acquisition would see PIA offer "new premium service to its customers as per the vision of the honorable prime minister".

The other positives listed down include drastic improvement in travel experience for PIA travellers, instant boost to its brand image and less downtime and better on-time performance.

The planes are expected to help the Pakistan Airline drive up its revenues from 22.5 billion PKR (Sh22.5 billion) in the first year of introduction to 32 billion PKR (Sh32.2 billion) at end of the the sixth year lease period.

The Pakistan government is preparing to privatise the national carrier, itself a loss making, and the strategic plan to lease the planes is seen as an attempt to restructure its operations and boost its value ahead of a planned privatisation. The Pakistan government is said to be injecting close to $30 million every month into the ailing airline.

The Pakistan privatisation minister, Muhammad Zubair, confirmed to Abb Takk Tv station that they are indeed leasing the three planes from Kenya and that they were doing so to get a good price from the planned privatisation.

Kenya Airways has not disclosed any details of the impending disposal of the planes but the Government has previously confirmed that selling some of KQ's idle assets was critical to the restructuring of the struggling national carrier.

Acting Transport Cabinet Secretary, James Macharia, told a Senate committee last month that the airline is planning to sell four of its old planes to fund-raise and help the airline turn around its dwindling fortunes. KQ posted a massive Sh29.7 billion before tax loss last financial year. The airline hopes to use the cash raised from disposing its assets to reduce its debt load.

KQ's management is of the view that this, and a Sh20 billion external loan it is pursuing, will keep its planes and pilots in the air, without reducing its ability to compete against deeper-pocketed competitors, including Ethiopian Airlines.