NAIROBI, Kenya
Kenya Airways, smarting from an after-tax loss of Sh7.8 billion, is to save up to KSh5 billion (US$60 million) over the next five years following the re-negotiation of maintenance contracts with suppliers of aircraft components.
The savings arise from improvement in commercial terms, service levels, contractual terms and conditions, as well as significant direct and actual cost savings; coupled with the benefits of the planned fleet expansion.
For the next five year contract period, the airline will save over KSh754.6 million (US$8.8 million) annually under its aircraft maintenance Component Support Programme (CSP). Its strategic expansion programme, Project Mawingu, which aims to grow its network of destinations and expanding the fleet from the current 42 to 107 new modern aircrafts, will lead to a significant cut in costs, contributing to the savings.
Chief Executive Officer and Group Managing Director Titus Naikuni said that the CSP was part of the airline’s efforts to review its high cost drivers in a bid to reduce operation costs without compromising on quality. “The aviation industry traditionally has high operating costs. This is the reason why we are continually reviewing our operations to ensure that we are able to deliver a world-class experience to our customers while keeping an eye on our costs,” he said.
The CSP was led by a team comprising airline staff from different areas – Technical Procurement, Engineering Development, Component Workshops, Technical Planning, and Quality Assurance & Engineering Finance – to develop guidelines and review all existing contracts. The cost-cutting comes as the aviation industry smarts from tough times in the last financial year due to knock-on effects of the economic slowdown in the Eurozone leading to reduced passenger numbers and a spike in oil prices that increased airlines’ operating costs.
This led to losses, financial difficulties and collapse of airlines. Kenya Airways indicated in the recently released 2012/13 full year financial results that its direct operating costs were KSh77.2 billion, which remained unchanged from the previous year. The airline’s turnover, on the other hand, dropped to KSh98.8 billion in the 2012/13 financial year, compared to the KSh107.9 billion that was netted the previous year.
However, the aviation industry is projecting better times in the 2013/14 financial year with profits expected to surge, though at thin margins, which calls for robust cost-cutting strategies such as CSP being rolled out by Kenya Airways.
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