Kenya Airways hires debt expert after record half-year loss

National carrier Kenya Airways has hired a financial adviser to help restructure its debt even as it posted an after-tax loss of Sh10.45 billion for the six months to September 30 this year.

Mbuvi Ngunze, the airline’s chief executive, said the consultant’s brief is to evaluate the balance sheet, with emphasis on renegotiating the maturity of loans to reduce the strain that repayment of short-term obligations is causing on cash-flows.

“The board has retained the services of a financial adviser to help rebalance our demand for cash and buy us time to drive the sales we need,” said Mr Ngunze during the release of the airline’s half-year results.

“We are a cash-hungry business and that means that we must look at our reliance on short-term versus medium-term financing requirements.”

The Nairobi Securities Exchange (NSE)-listed carrier announced a profit warning for the year ending March 2015, meaning it expects to close the period with an obvious loss of above Sh4.3 billion in the wake of dampened passenger numbers due to suspension of flights to Ebola-hit Sierra Leone and Liberia and insecurity at the Coast.

Profit warnings are required by the Nairobi Securities Exchange when earnings are expected to be lower than the previous year by at least 25 per cent. The airline closed its books in March with a full-year loss of Sh3.38 billion.

KQ, as the airline is popularly known, has total current liabilities worth Sh70 billion, of which Sh40.7 billion are short- term loans, Sh16 billion is owed to suppliers and Sh11.4 billion is cash due in advance of carriage (pre-payments).

On the other hand, long-term loans stand at Sh95 billion or 94 per cent of the total non-current liabilities.

It is this mix of debt — mostly sourced from international lenders — that the newly-appointed financial adviser is expected to tackle, even as it guides the airline on prudent ways of returning it to profitability.

“We recognise that this (debt) is one area of exposure today since we are relying on short-term loans,” the chief executive said.

Mr Ngunze, who officially took over as CEO on November 1 following the exit of long-serving boss Titus Naikuni, declined to disclose the identity of the consultant, including revealing whether it was a local or international individual or even company.

READ: KQ sees Sh4bn revenue loss after West Africa flights ban

The Business Daily has, however, reliably learnt that the name of the financial consultant will be made public next week.

Mr Ngunze says the company’s performance was affected by slow growth in passenger numbers, which did not keep up with the investments made in expanding the airline’s fleet.

The fiscal year under review saw KQ receive five Dreamliner 787 planes and two 777-300s, increasing its fleet number by six to 48. Total seat capacity went up 17.3 per cent to 6,967 but despite this, the cabin factor — a measure of capacity utilisation — decreased from 70.1 per cent to 64 per cent this year.

KQ says it handled 2.1 million passengers over the period — an 8.2 per cent increase from 1.94 million last year.

Suspension of flights to Sierra Leone and Liberia in August this year due to Ebola was one of the reasons for this, adding that if the route remains a no-go zone for a straight year, it will cost them approximately Sh3.6 billion.

READ: KQ sees Sh4bn revenue loss after West Africa flights ban
Attacks at the Coast this year also “dampened” bookings, especially on the popular London-Mombasa route, by approximately 40 per cent following travel advisories by several Western countries.

“The uptake of capacity has been lagging behind a bit despite the increase in our fleet size,” said Alex Mbugua, KQ’s finance director.

This slowdown in business saw KQ report a small 4.4 per cent increase in revenues to Sh56.7 billion compared to Sh54.3 billion it posted during a similar period last year.

Direct costs, overheads and fleet ownership expenses totalling Sh61.7 billion then wiped out their revenue, leaving them with an operating loss of Sh5 billion, compared to last year’s operating profit of Sh1.7 billion.

READ: New aircraft budget weighs heavily on Kenya Airways

Following the introduction of six new Dreamliners (one arrived in October) during a period of reduced business, KQ sold off four Boeing 777-200 planes, seeking to consolidate its fleet and release cash. The need to finance debts means that the airline can ill-afford to hold idle capacity.

The four planes were disposed of at a Sh5.4 billion loss, a paper entry which, coupled with financing costs of Sh1.7 billion, further ate into the firm’s earnings, seeing them post a Sh12.49 billion profit before tax.

A tax credit of Sh2.04 billion, however, helped KQ close the half-year period at Sh10.45 billion net loss.