Treasury gives KQ Sh10bn loan for turnaround plans

Troubled national carrier Kenya Airways has received Sh10 billion soft loan from the National Treasury, giving the airline muscle to implement its turnaround strategy.

The government borrowed the cash from Cairo's Afreximbank on behalf of KQ whose fortunes have dwindled in the last five years hurting its ability to book debt on its own.

“We have already disbursed to KQ because this money was for on lending,” said Treasury secretary Henry Rotich.

The loss making firm declined to reveal how it plans to spend the cash saying it is in a closed reporting period.

The airline, which shocked the market with a Sh25.7 billion after tax loss last year, is expected to release its full-year results at the end of the month.

Retrenchment costs are expected to be key in the management agenda following the delay of planned job cuts due to lack of funds.

The loss-making company had announced plans to lay off 600 workers beginning May but did not start the process until last week — soon after the cash was made available.

The company sent home 80 employees on Sunday as the powerful Kenya Aviation Workers Union said it did not expect further retrenchments.

READ: Kenya Airways to cut 80 jobs in first phase of layoffs

KQ has concurred with the union that the number will be lower than earlier announced due to effects of natural attrition and talks with the union.
Four years back, KQ spent Sh826 million to fire 599 employees in a process that was challenged in court.

Recent retrenchment exercises undertaken by listed companies have proven to be a costly affair with National Bank of Kenya spending Sh1 billion to send home 200 employees in 2014 while Barclays Bank spent Sh788 million a year earlier to lay off 170 workers.

KQ expects to save Sh2 billion annually from the staff cuts. The airline’s staff cost has grown by 51 per cent in the past five years to Sh16.96 billion for the year ended March 2015 compared to Sh11.2 billion in 2011. Its workforce stood at 3,973 as at March last year.

The national carrier targets to save Sh20 billion in the turnaround plan dubbed Operation Pride.

This is the second tranche of a Sh20.2 billion debt taken by the Treasury on behalf of the company. The government owns 29 per cent of the airline.

Taking the loan through the Treasury allows KQ enough room to craft a repayment plan that does not pile pressure on its balance sheet, which is already heavy with debt and has forced the airline to sell some of its assets.

The airline sold two Boeing 777-200 ER aircraft to US-based airline Omni Air and has earmarked two more for sale.

It has also leased its Boeing 777-300s, leaving it with the smaller B787s, which have similar abilities for long-haul flights, in a move the management estimates will save the airline Sh700 million monthly.