Broke Kenya Airways sinks deeper into debt to pay staff


Kenya Airways (KQ) Managing Director Mbuvi Ngunze speaks during the release of the company's half-year financial results for the period ended September 30, 2014. Kenya Airways has turned to debt to pay its workforce. PHOTO | SALATON NJAU |

Cash-strapped national flag carrier Kenya Airways has turned to debt to pay its workforce as it flies under the weight of liquidity problems that have seen its debt burden hit Sh70 billion.

Chief executive officer Mbuvi Ngunze said the airline was experiencing tough financial times that had left it with no option but to rely on debt to sustain its nearly 4,000-strong workforce.

“...So how am I paying my staff? I am paying them through debt,” Mr Ngunze said when he appeared on a local TV station’s business show on Wednesday night to address issues swirling around the airline.

The national carrier has been going through turbulent times since booking a Sh10.45 billion after-tax loss for the six months to September last year.

It blamed the performance on dampened passenger numbers due to the suspension of flights to Ebola-hit Sierra Leone and Liberia and insecurity at the Kenyan Coast.

The national carrier’s total current liabilities stood at Sh70 billion by September last year, Sh40.7 billion being short-term loans, suppliers are owed Sh16 billion, while pre-payments or cash due in advance of carriage amounts to Sh11.4 billion.

“It’s one way of solving immediate cash flow problems considering the alternatives like going to the market might be a long and painful process,” Mr Erick Munywoki, an analyst at Old Mutual, said. “KQ has little option because the airline industry as a whole has experienced several external shocks in the past and is not making enough money from operations.”

Mr Ngunze said KQ was looking for an option of restructuring its debt burden as a first step in turning around its fortunes.

“Part of the work we are doing is to create the building blocks to be more cash generating so as to come back from our loss position,” he said.

Mr Ngunze, who officially took over as chief executive on November 1, following the exit of long-serving boss Titus Naikuni, said the company was considering long-term bond or a fresh capital injection to steady the airline from the turbulence.

With long-term loans standing at Sh95 billion by September last year, however, the chief executive officer said the airline would not need a government bailout.
“We are not at a point where I could say we need a (government) bailout,” he said, even though the company announced a profit warning for the full year ending March 2015.