Head In The Clouds?

There has been considerable excitement in Kenya’s aviation industry with the national carrier, Kenya Airways announcing a bold new strategy but being taken to task by unions over retrenchment and a rapid growth in the number of business-oriented aircraft. 

It has been an eventful year for the Kenyan aviation sector. Matters touching on the country’s aviation industry generate much passion in Nairobi and are not limited to the national carrier, Kenya Airways (KQ) and private sector players, but involve the country’s airports management corporation, the Kenya Airports Authority (KAA) all the way to the individual aviation enthusiasts and the general public.

Kenya Airways, the ‘pride of Africa’, began 2012 by raising $170m through a public rights issue to finance ‘Project Mawingu’ (mawingu is Swahili for clouds), its 10-year strategy. The strategy is aimed at modernising its fleet, diversifying and increasing KQ’s routes, strengthening its human capital and solidifying its position in the African continent.

KQ’s bold ‘cloud’ strategy aims to triple its passenger fleet to 107 air planes, a majority of which will be wide bodied. By the end of the 10 years, KQ intends to adopt the Boeing 787 as its main aircraft and intends to have 32 of this type of plane in its fleet. At present KQ has nine Boeing 787s on order.

“Kenya Airways has ordered nine Boeing 787 Dreamliners which were due in 2010, but due to delivery delays by Boeing as a result of manufacturing problems, we are now expecting our first delivery late 2013/early 2014. We have also ordered three Boeing 777-300 ERs with the first one arriving in October 2013 and the rest in May and June 2014,” Kenya Airways’ CEO, Titus Naikuni, says. “Over the last few months the company has revisited cost structures, reviewed processes, increasing efficiencies in order to mitigate decline in profitability, whilst maintaining and growing customer satisfaction.”

Also featuring in KQs mawingu approach are 31 Embraer E-190 planes. In line with fleet acquisition, it anticipates to expand its routes and destinations by venturing into South and North America and Australia by 2017. Currently KQ flies to 56 destinations, 45 of which are in Africa and hopes to double these to 115. By next year, KQ intends to fly to every African country. While KQ will be seeking footprints in these new markets and broadening its wings in most of Asia, it also hopes to add six more routes to India. Courtesy of large business volumes in China, KQ plans to increase the number of destinations in China from the current flight to Guangzhou to take in other major Chinese cities like Chengdu, Beijing, Shanghai, Chengdu, Chongqing, Xiamen, Kunming and Urumqi.

Press war

As part of its restructuring process, Kenya Airways initiated a voluntary retrenchment scheme which saw some of its 126 members of staff leaving the airline. Another 578 are expected to follow suit.

This move was however not received well and has attracted criticism from the affected employees and Kenya Airline Pilots Association (KALPA), the umbrella pilots’ body in Kenya.

KALPA bought full-page adverts in the local dailies and slammed the airline’s top management for retrenchment in the name of employee costs. “If the management had half the effort towards addressing direct operation costs as it does employee costs, KQ might just get on the right path,” the advert signed by Captain Ronald Karauri, the general secretary and chief executive of KALPA, read in part. “We do not believe that the same management … that has steered the airline to this position is the ones best qualified to lead us out.”

KALPA went on to accuse KQ of favouring expatriate staff and of pursuing poor strategic decisions pointing out that after years of misadvised decision-making and its relying on knee-jerk reactions to situations as they develop. This short-sighted thinking has put the airline in the position it is now, and it is clear that the chickens have come home to roost,” said the statement. KQ’s plans to launch a low-cost airline, Jambo Jet, was also largely criticised by KALPA, who noted that the plans would compete with the well-established airlines like EasyJet and FastJet.

A few days after the retrenchment exercise began, KQ CEO Titus Naikuni sought to clarify the matter. “We followed the labour laws to the letter and looked around at what was happening in the marketplace in Kenya and Africa and packaged the best and most fair deal for our employees. Kenya Airways is also offering job and business training services to all those affected at the company’s cost to ease the transition into new jobs or self-employment.”

Exactly a week after KALPA’s advert was published Naikuni responded to KALPA’s challenge in the same format by buying full-page adverts in the press.

“Network growth between years 2010/11 and 2011/12 was up by 24%, revenue was up 26%. It is important to note that labour costs almost doubled from $71.5m in 2008 to $160m this year,” Naikuni noted.

On the issue of expatriates, he explained. “Kenya Airways hires employees based on a job group system. In other markets where we operate, staff are paid based on local HR policy and job rates determined by the cost of living. Therefore, these claims of foreign employees being paid better than their Kenyan counterparts are unfounded and misleading.”

The KQ CEO went on to add: “Kenya Airways has 46 Kenyans working as expatriates abroad, with only seven expatriates working in Kenya Airways Nairobi. Across the Kenya Airways network we have employed 480 staff in the different countries that we operate as local employees. It is very expensive to send Kenyans to these different countries that we operate in due to the high expatriate costs and in some instances difficulties in getting work permits.

“Kenya Airways is a global airline serving different nationalities with diverse cultures, which has necessitated us to employ crew from these nationalities. We are not the only airline following the same principle. Carriers in the Middle East, for instance, who are our competitors, have employees from all over the world including Kenyans who are ex-KQ staff in some cases.”

Chinese firm wins JKIA contract

While KQ was busy explaining its strategy and setting the record straight, attention focused on developments at the Jomo Kenyatta International Airport (JKIA) in Nairobi, which is managed by the KAA.

News that the $649.3m Greenfields Terminal construction tender being awarded to the Chinese firm Anhui Construction Engineering Company ending weeks of controversy, was received with a sigh of relief.

JKIA is now positioned to be able to handle more passenger and cargo traffic and boost Nairobi’s ‘communications hub’ tag.

JKIA’s refurbishment is currently in Phase 2. Phase one which began in 2006 and consisting of apron construction, work on a new terminal, taxiway, extension of the fuel hydrant system and fencing was completed and Phase 2 began in 2008. Phase 2 involves construction of a car park that can accommodate some 1,500 cars among other related works and is expected to be completed in early 2013.

Add to this the news in September by Hawker Beechcraft Corporation (HBC), a world-leading manufacturer of light business and trainer aircraft, that Kenya is a prime market for business aircraft and you understand why the country’s aviation sector is exciting.

HBC says that the “number of business aircraft delivered in Kenya grew by 138% during the period 2007–2011. In that period 19 business aircraft were delivered to Kenya, compared to eight in the region over the period 2002-2006. The Kenyan business aircraft fleet now stands at 103 aircraft – representing 9% of the total African market – and Hawker Beechcraft has identified the country as an increasingly attractive market.”

According to HBC, the entire African business fleet grew by 25% over the same period, attracting 232 new deliveries bringing the total number of business aircraft on the continent to 1,156.

“As Africa continues to develop, demand for business aircraft will grow dramatically, fuelled by the need to visit remote parts of the region, cover vast distances and counter the limitations of the transport infrastructure, which is underdeveloped compared to other parts of the world,” Sean McGeough, HBC president, Europe, Middle East, Africa and Asia Pacific said.

“Given this, travelling by business aircraft is sometimes the only option. The continent has become a popular investment destination as it increasingly opens its doors to foreign investors. It is rich in natural resources and trade is growing at an impressive rate. All of this makes Africa – and particularly Kenya – an increasingly attractive market for us.”

The current composition of Africa’s business aircraft, according to HBC is: 39.5% (457 aircraft) in South Africa followed by Kenya, which has 103 business aircraft (8.9%) and Nigeria which has 70 business aircraft (6.1%).