KQ’s subsidiary eyes turnaround after record loss

Precision Air is seeking Sh2.8 billion bailout to meet its financial obligations, including payment of aircraft suppliers and servicing bank loans. FILE
Precision Air is seeking Sh2.8 billion bailout to meet its financial obligations, including payment of aircraft suppliers and servicing bank loans. FILE  Nation Media Group

Kenya Airways’ Tanzanian subsidiary Precision Air will scale back on routes and cancel aircraft leases after returning a net loss of Sh1.65 billion for the year ended March 2013.

The airline will also terminate what it terms as “expensive” leases of Boeing 737 aircraft.

Increased expenditure saw the airline return a net loss in spite of a growth in total revenue, which went up by 8.2 per cent to Sh9.56 billion, and passenger numbers which grew by 8.5 per cent to 895,150.

Direct expenditure for Precision Air went up by 24 per cent to Sh7.85 billion due to increased cost of fuel and equipment-related costs.

Aircraft maintenance costs increased from Sh644.6 million in 2011 to Sh1.28 billion in 2012, mainly due to the high costs of maintaining the Boeing 737 fleet.

The airline has shaken up its top management, with the new team tasked with implementing a new five-year strategic plan that will also oversee staff retrenchment and a move to third-party aircraft maintenance and advertising.

“Indirect expenditure grew by 18.6 per cent to Sh2.28 billion, driven mainly by staff-related costs that went up by eight per cent to Sh1.54 billion in 2012,” said the board chairman Michael Shirima in a statement.

Mr Shirima has a 43 per cent stake in the airline, while Kenya Airways has 41.2 per cent. The rest of the airline’s shares were sold in an IPO in 2011. KQ’s ownership of Precision Air was diluted to 41.2 per cent from 49 per cent after the IPO.

Precision Air has leased three Boeing aircraft that serve several African routes.

The scaling back of its fleet and routes could yet reduce the growth in passenger numbers for the airline, threatening growth in revenue.

In addition to the higher expenditure costs, the company also experienced foreign exchange losses of Sh238.4 million for the financial year ending March 2013, representing a 50 per cent increase on the foreign exchange losses from the previous year.

Financing costs grew by eight per cent due to overdrafts.

“This is largely related to US dollar denominated borrowings for aircraft financing,” said the carrier in a statement.

Precision Air accrued loans to fund expansion of its fleet, and the management disclosed that the anticipated cash flow after the company listed on the Dar es Salaam Stock Exchange did not materialise.

As part of its expansion plans, the airline had announced a Sh8.3 billion ($95 million) investment in five new 90-seater aircraft as it braced for the entry into the Tanzanian market of UK- based low-cost carrier FastJet.

The company is as a result of financial difficulties seeking a Sh2.8 billion ($32 million) bailout from various sources among them the Tanzanian government in order to meet its financial obligations, including payment to aircraft suppliers and servicing bank loans.

According to a report in Africa Review, a publication of the Nation Media Group, the Tanzanian government through its Transport ministry, formed a committee last month to look into the airline’s request for financial aid.

Precision Air disclosed in August that it had carried out a forensic audit to determine the cause of the financial difficulties, and that only after findings are ready would the management consider legal measures against those suspected of running the company down.

In March, the Tanzanian carrier appointed former KQ general manager in charge of cargo operations Sauda Rajab as its new chief executive replacing Alfonse Kioko who had been at the helm of Precision Air since 2003.

Mr Kioko was also a manager at KQ prior to his Precision Air appointment, serving as general manager in charge of Middle East and Asia where he was in charge of operations covering 25 countries.