Kenya Airways will this morning sign a purchase agreement that will see the national carrier buy up to 26 jets from Brazilian firm Embraer in a deal that aligns the airline’s expansion plan and threatens the dominance of US aircraft maker Boeing.
The national carrier has been aggressively moving into new markets, especially in Africa, a move that has put a strain on its fleet, which stood at 31 in March.
An Embraer spokesperson yesterday said the deal will include the supply of 10 jets and the rights for KQ to purchase an additional 16 whose delivery is expected from the second half of next year.
“The deal also includes purchase rights for 16 aircraft, which could be either the Embraer 190 or other models of the E-Jet family,” Ghislain Bouman, the firm’s press officer for Europe, Middle East and Africa said in an interview with the Business Daily.
KQ’s decision to buy Brazilian jets, which are mainly used in domestic and short regional routes, is set to shift the balance of power in the sale of planes in Kenya that has remained in the hands of Boeing.
It is also a blow to European Airbus whom Kenya Airways has been mulling to offer contracts following delays by Boeing to deliver planes agreed on in 2006.
Of the 31 planes KQ is operating, 25 are Boeing and six from Embraer, up from three held two years ago.
The Brazilian firm has in the past year launched a charm offensive in Africa as it seeks to cut the dominance of Boeing and Airbus.
This is in line with the push by Brazil to boost trade with continent as emerging countries gradually shift their economic dependence away from rich nations.
Trade between Brazil and Africa has increased more than five-fold to $26 billion since 2003 and its embassies in the region have doubled to 34 in its quest to grow business for their companies.
Embraer has been angling for a piece of the African Market following recent expansion announcements by airlines. In his recent visit to Kenya, Mr Mathieu Duquesnoy, Embraer’s Vice President - Commercial Aviation, Middle East & Africa – who will also be presiding over today’s signing said his firm was willing to arrange credit lines through the Brazilian government’s export credit agency for smaller airlines wishing to buy its planes.
Industry data shows that Africa is expected to generate demand of upto 800 aircrafts before 2030.
For KQ, the new planes will help rev up its earnings through increased passenger traffic on its current and planned new routes as well as bring on board fuel efficient jets - a key profit driver since fuel accounts form a significant portion of the airline’s operating costs.
“As we continue to focus on the expansion of our network with longer routes from our hub in Nairobi, the acquisition of new Embraer 190s is key to our growth strategy,” said Kenya Airways’ managing director Titus Naikuni in June when the national carrier expressed its intent to buy more Brazilian jets.
“The E190 jet fits well with our expansion strategy, giving us an opportunity to expand our network and increase our frequencies.”
The firm is keen on planes that consume less fuel and have lower maintance costs as it races to put a lid on costs at a moment when its faced with ballooning costs compounded by employee wages.
Its share price has also fallen by over 36 per cent in the past year to the current price of Sh31.25.
Battle for travellers
The Embraer deal will add fresh impetus to the ongoing battle for African travellers pitting Kenya Airways, Ethiopia Airlines and South African Airlines.
It also signals Kenya Airways’ shifting preference towards the cheaper Brazilian aircraft, while cooling off debate over the rivalry between Boeing and Airbus, which Kenya Airways was planning to turn to following delay in the delivery of nine Boeing planes, commonly referred to as Dreamliners.
KQ has announced plans to start flying into Jeddah in Saudi Arabia and Beirut in Lebanon in addition to Ouagadougou in Burkina Faso launched recently.
Other routes on its radar include Abuja in Nigeria, Tanzania’s Kilimanjaro, Port Louis in Mauritius and Asmara in Eritrea in a push to connect more African cities from Nairobi in a market that generates 49 per cent of its Sh85.8 billion revenues. Its net profit grew to Sh3.5 billion in the year to March compared to Sh2 billion in a smilar period last year.
The firm plans to raise Sh20 billion this year, according to Kestrel Capital, to fund the acquisitions.