A Kenya Airways plane at the Jomo Kenyatta International Airport in Nairobi. PHOTO | FILE
What you need to know:
The cash-strapped airline received Sh4 billion from the sale of its Heathrow slot to Oman Air and a further Sh10.4 billion in pre-delivery deposit refunds.
Citi analysts project that these one-off incomes will cumulatively boost KQ’s earnings for this financial year, seeing it end the period with a net loss of Sh11.6 billion, less than half last year’s Sh25.7 billion after-tax loss.
The sale and leasing out of some of Kenya Airways’ aircraft stand to earn the national carrier about Sh11 billion, investment bankers at Citi have revealed.
The analysts have, in a note to investors, indicated that KQ will earn the amount from the sub-leasing of five planes (to Oman Air and Turkish Airlines) and the sale of two Boeing 777-200 aircraft in the financial year to March.
The cash-strapped airline received Sh4 billion from the sale of its Heathrow slot to Oman Air and a further Sh10.4 billion in pre-delivery deposit refunds, with the Citi analysts concluding that the airline’s liquidity is now “under control”.
Kenya Airways declined to make public the earnings from the sale and lease of the aircraft.
Citi analysts project that these one-off incomes will cumulatively boost KQ’s earnings for this financial year, seeing it end the period with a net loss of Sh11.6 billion, less than half last year’s Sh25.7 billion after-tax loss.
KQ has agreed to sub-lease three Boeing 777-300ERs for four to five years from May/June 2016 and two Boeing 787-8s for three years from April/May 2016, reducing net fleet ownership costs by Sh707 million per month.
This leaves the national carrier with 43 active aircraft (down from 50 as of March last year), a downsizing which Citi says will see its full-year revenue drop by Sh2.5 billion to Sh107.7 billion.
The carrier is slated to announce its full-year results in the coming weeks, amid ongoing restructuring initiatives for which management contracted McKinsey in July 2015 to help oversee.
By streamlining its business practices, the national carrier expects to boost the firm’s bottom-line by about Sh20 billion, adding to the income from its asset sale which includes land in Embakasi.
Citi’s analysts project that the national carrier, which has posted losses for three consecutive year, could return to profitability in the year to March 2018 with a Sh2 billion net profit.
According to Citi, the airline will improve its loss position to Sh1.5 billion in 2017.
“KQ has historically out-grown and has been more profitable than African airline averages,” the analysts stated. “A combination of weak tourism, restructuring setbacks, fears surrounding Ebola and increasing net interest expense caused significant losses in FY15.”
KQ’s management is in the process of negotiations with its key shareholders Treasury (29.8 per cent) and KLM (26.7 per cent) for long-term financing estimated to be in the region of Sh60 billion in debt and/or equity.
African Export-Import Bank (Afrexim) last year agreed to lend KQ $200 million (Sh20 billion) as a bridging loan to ease its cash-flow constraints but the airline has received half the amount.
A delay in receiving the outstanding amount, which is guaranteed by Treasury, has stalled the rationalisation exercise planned to kick off early last month in which about 600 staff were to be redeployed or sacked.
Taking the loan through the government allows KQ enough room to craft a payment plan that does not pile more pressure on its balance sheet, which is already heavy with debt.
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