Friday, January 4, 2013

● KENYA: AFRAA launches Fuel Procurement Tender for 1bn litres of JetA1.

The African Airlines AssociationThe African Airlines Association's (AFRAA) has finalized its second bulk Jet A1 fuel tender awards for 2013 with volumes bought increasing to over 1 billion litres, up 300 million litres on 2012, with the number of participating airlines also increasing from 8 to 13 members. The increase in membership comes as the effects of drastically high global oil prices have continued to take their toll on airline's bottom lines, not just in Africa, but the world over.

 AFRAA Fuel Negotiations
The 2013 AFRAA Fuel Negotiations
With fuel accounting for 40-50% of airline's total direct operating costs, carriers, once fiercely independent, have come on board the Pan-African project with a prime example being Kenya Airways (KQ) who are said to have saved almost USD2million in 2012 under the joint purchasing agreement

Using the Economies of Scale principle, the fuel project initiative aims to obtain better pricing per litre of Jet A1 fuel for the participating airlines by purchasing in bulk. This thereby assures the quality of the product and supply reliability whilst the relevant fuel suppliers benefit from the higher fuel volumes purchased by the airlines. 

The AFRAA's Fuel Committee, which comprises fuel procurement managers and finance personnel from the respective airlines, carried out a detailed analysis which resulted in significant savings for the members with the Committee noting that "suppliers had both supported the project with very few exceptions and given back positive feedback".

Overall, the procurement proceeds in 2 phases:

Tender Progress Phase:
Each member commits volumes at the various locations and provides the Secretariat with their fuel suppliers at the various locations. The airlines also notify their fuel suppliers of the joint tender which was issued through the AFRAA via a communique.

Fuel Negotiation Phase:
  • Stage 1: 1st round of negotiations where the fuel suppliers had an option of either calling in or having a face to face negotiation.
  • Stage 2: 2nd round of negotiations where the suppliers had the opportunity to improve on their bids.
  • Stage 3: The final stage involved the suppliers providing their best and final bids which were not subject to further negotiations.

The technical team then reviewed the bids and prepared the final report for the Committee, making recommendations on the awarding of the tenders to the most competitive suppliers. 

Some of the key issues reviewed were taxes and charges, price basis and payment currency. A precondition is that the price is uniform to all the members but the contracts would be signed between the fuel supplier and the participating individual airline. Payment terms would be agreed and included in the individual contracts. 

The Secretary General of the AFRAA, Dr Elijah Chingosho commended the Fuel Committee and noted that through cooperation, African airlines can ride the tide of the turbulent economic environment.