Wangui Maina

31 August 2010

Kenya Airways is facing major threats to its earnings following the announcement of further delays of Boeing aeroplanes planned for its expansion.

Boeing announced a further delay of the aircraft on Friday citing unavailability of a Rolls Royce engine needed for the final phases of flight testing.

In an interview with an international aviation online magazine ATW, Mr Titus Naikuni, Kenya Airways chief executive said he was considering cancelling the nine 787's the airline has on order due to further delays. "I would dare cancelling the order," he said. "If they can't deliver, we will cancel. We will take a decision (on whether to) go with Airbus or stay with Boeing before the end of the year."

The recent delays by the manufacturer is a blow to Kenya Airways (KQ) which is expecting to rev up its earnings through increased passengers traffic on its routes and bring on board a fuel efficient jet - a key profit driver since fuel accounts for a significant potion of the airline's operating costs.

It will use 20 per cent less fuel for comparable missions in similar sized aeroplanes. The first of the long-awaited aircraft will not be delivered until next year, a two year delay, meaning KQ will have to wait to receive its orders beyond 2013. KQ has been aggressively expanding to new destinations, especially in Africa, where it sees "its mainstay" to be.

The delay leaves KQ in a precarious position as it was looking to phase off its Boeing 767 with the arrival of the new planes. It has been weighing four options that could cushion it including extending the lease of the current planes, acquire newer, but used planes already in the market or invest in new aircraft of the same mode.

The airline is also considering acquitting new Airbus 330 to see through its expansion although this has raised questions if this would be prudent as it would involve training of staff and major investments to accommodate the new model. Currently, the airline has on loan a Boeing 737 from KLM, which still boasts the European airline's colours, and another is the next few months.

Just this month one of the older Boeing 767's was returned to the owner with another newer but used one expected to replace it in a couple of months. In addition, the airline has received new Embraers to help with the regional routes. The announcement last week by Boeing is the latest in a series of delays by the manufacturer on the plane that is touted as more fuel-efficient than other commercial aircraft, lighter and environmentally friendly.

In June last year, the manufacturer delayed the plane due to what the company said was additional stress where the wings attach to the side of the plane. KQ is only one of the Dreamliner's customers as other airline's including Ethiopian Airways, British Airways, Virgin Atlantic and Emirates wait. Boeing has orders for 847 of this plane in its book - the plane costs between $150 million and $205 million.