Kenya Airways will reduce its fleet costs by Ksh700 million ($7 million) per month with the sale of its aircraft as the airline continues implementing its turnaround strategy.

The airline will also send home close to 600 workers to ease pressure on its wage bill.

The airline is expected to begin talks with workers’ unions on how jobs cut will be done.

“A series of meetings are lined up and each group will present its case. For Kenya Aviation Workers Union, one thing that could see us in court is an attempt to lay off our members at the expense of outsourced staff,” said Moses Ndiema, the union’s secretary general.

The realisation comes a month after KQ board appointed PJT Partners to restructure the airline’s balance sheet and raise long-term capital. The turnaround strategy is focusing on closing of profitability gaps, reaffirming a competitive edge and finding a sustainable financial structure for the business.

“There has been some wins already with the sale/lease of our 777 and two of the B787 aircraft, which will reduce our fleet costs by Ksh700 million ($7 million) per month. We are looking forward to more recurring gains in terms of revenue improvement and cost reduction,” said Mbuvi Ngunze, the airline’s chief executive, adding that the restructuring will take six to nine months to execute.

The airline’s total operating costs in the six months ending September 2015 stood at Ksh58.9 billion ($583 million) against revenues of Ksh56.7 billion ($561 million). Its operating loss for the six months to September 2015 was Ksh2.2 billion ($22 million).

As part of its turnaround programme, the airline has announced changes on its Africa and London routes in the expectation of boosting connectivity for its passengers in Africa by at least 20 per cent.

The airline will fly four times daily to Johannesburg from three times a day previously. Night flights to Antananarivo in Madagascar have been introduced, increasing the frequency to twice a day.

Flights on the London route, on which KQ sold a morning slot at Heathrow airport, were rescheduled effective March 27 to ensure efficiency. The sale of the 5.30a.m arrival slot earned Kenya Airways $30 million of the total $75 million realised, with KLM, which has a stake in KQ, pocketing the rest.

KLM owns 26.7 per cent of KQ with the Kenyan government holding a 29.8 per cent stake.

According to the new schedule, the London flight will depart Jomo Kenyatta International Airport (JKIA) at 0910h to arrive in London at 1615h. It will depart from London for Nairobi the same evening arriving, in Nairobi the next morning.

Analysts said selling the aircraft and reducing the number of long haul flights including the sale of Heathrow’s morning slot are meant to raise capital.

“The company is fighting for its survival. The airline could require restructuring of its fleet and even rebuying that Heathrow morning slot at a higher price in future,” said Eric Musau, a senior research analyst at Standard Investment Bank Ltd.

The airline had been taken to court by workers’ unions, but the company argues that retrenchment is not the only labour component of its strategy.

“Retrenchment constitutes only 10 per cent of the overall turnaround plan. We are not ready to speak on the details yet,” said Mr Mbuvi.

Analysts said KQ requires a job analysis to cut on duplication of duties or automating some services. Whereas the strategy is seemingly working, analysts warned that passenger and cargo revenues could be affected as the airline cuts on the capacity while postponing a need to restructure its fleet for more capacity in future.

Cargo volumes decreased by 2.9 per cent in the six months to September 2015 because of the fall in capacity. KQ bought a consumer friendly Dreamliner fleet and is doing away with the larger Embraers, which favour cargo capacity, especially for the lucrative routes of China and West Africa.

During the first half of the current financial year, Kenya Airways acquired one Boeing 787-8 Dreamliner and one Boeing 738-800NG aircraft, bringing the total fleet to 48.

“A decision to cut down free services including food and drinks aboard the planes could impact on passengers who were previously used to such services on KQ flights. The attitude of the staff has to be up to the task to compete with other airlines,” said Mr Musau.

According to experts, the capital injection promised by the government could support the strategy but the airline should stay away from expensive capital, which could entail a huge debt responsibility.

In a mini-budget announced last week, the Treasury will give a Ksh20.2 billion ($200 million) bailout to the national carrier to close the airline’s debt gap.
The airline’s debt rose to Ksh14.77 billion ($146 million) in 2015 from Ksh89 billion ($881 million) in 2014.

“The airline should negotiate for conventional rates, reschedule some of ITS major obligations like acquisitions, reschedule agreements and negotiate for supply of goods and services without additional interest,” said Owen Koimburi, a partner at Mazars Kenya.