How Does Kenya Airways Use the Services of an SPV

After Kenya Airways was privatized in the year 1996, there was need to purchase and acquire new aircrafts and this led to the setting up of various Special Purpose Vehicles by the Kenya Airways’ lenders as part of the financing arrangements to facilitate the efforts of Kenya Airways to acquire its fleet.

Many airlines around the globe use the services of SPVs and this practice is normal in any airline industry as well outlined and evidenced in the IATA aircraft financing guidelines.

The use of SPVs is not only tied to the aviation industry but it also a common practice for large asset financing such as ships.

Special Purpose Vehicles are basically entities created to engage in specific financial transactions e.g. asset acquisition or leasing which often times involves aircraft purchase that requires large volumes of money that might put a business entity at risk if it was meant to finance the whole process.

The reason why Kenya Airways employs the use of above Special Purpose Vehicles finance structure often in the aircraft purchase transactions is to enable the company to minimize risks associated with ownership and operation of aircraft during loan repayment periods.

The title to the aircraft in terms of ownership upon purchase is held by the SPV for the term of the loan and is passed to the airline upon full repayment of the loan.

This implies that Kenya Airways buys its planes through SPVs which run and maintain the planes and only fully passed to the Kenya Airways upon full completion of the payment of the loan.