Companies

KQ eyes Treasury signal for new turnaround plan

kq-Dreamliner0504FA

A Kenya Airways aircraft at JKIA. FILE PHOTO | NMG

geraldandae

Summary

  • The plan submitted by UK consultancy firm Steer Group last month suggests the most viable options of revamping the airline in the face of deepening financial losses.
  • KQ chairman Michael Joseph Wednesday confirmed that the report was complete and awaiting approval by the Treasury.
  • Crafting a viable turnaround strategy for KQ was one of the conditions for the Sh255 billion loan to the government from the International Monetary Fund (IMF) in March.

A proposed new turnaround strategy for Kenya Airways is awaiting approval by the Treasury even as the airline hopes for improved fortunes in the medium term.

The plan submitted by UK consultancy firm Steer Group last month suggests the most viable options of revamping the airline in the face of deepening financial losses and depressed passenger numbers.

KQ chairman Michael Joseph Wednesday confirmed that the report was complete and awaiting approval by the Treasury. He did not discuss the report’s content.

Crafting a viable turnaround strategy for KQ was one of the conditions for the Sh255 billion loan to the government from the International Monetary Fund (IMF) in March.

In the loan deal, Kenya committed to audit and reform the operations of nine key State-owned enterprises (SOEs) to ensure their viability.

These are Kenya Airways, the Kenya Airports Authority, the Kenya Railways Corporation, the Kenya Power and Lighting Company, the Kenya Electricity Generating Company, the Kenya Ports Authority, and three of the largest universities.

For Kenya Airways, the government committed to hiring an independent consultant to audit the airline and find the cheapest way of restructuring it.

As the airline awaits the Treasury’s word on the recommended reforms, it continues to ride turbulent times amid suppressed business.

The airline, which eyes a fresh cash bailout from the Treasury, posted a Sh11.49 billion net loss in the six months ended June — a 19.8 percent cut from the Sh14.33 billion loss it incurred in the preceding similar period. This took its accumulated losses over the years to above Sh127 billion.

KQ’s liabilities outstripped assets by Sh73.85 billion as at end of June compared with Sh64.16 billion in June last year, keeping it technically insolvent.

Accumulated losses and revenue dip caused the company to breach the terms set by the global financiers, underlining the airline’s debt distress.

“The financial situation of the company is precarious. We are in a negative equity position, which means we are insolvent as an organisation, obviously made worse by the pandemic,” KQ chief executive Allan Kilavuka said when the airline released its half-year results last month.

“Definitely the company needs financial support and this is not a secret. We still need financial support from our principals or elsewhere.”

KQ previously borrowed from international financiers and nearly all of the country’s leading banks, including KCB and Equity. The airline, however, defaulted on the loans from the local banks, who now only maintain a revolving credit facility agreed earlier as part of the restructure of their combined Sh17 billion worth of unsecured loans in 2017.

International lenders like JP Morgan and Citibank have secured their loans using the aircraft purchased by the company.

KQ’s quest for a fresh bailout comes at a time many State-owned entities, including Kenya Power and Kenya Railways, have continued to depend on the exchequer for survival, with little being done to fix their business models.

Kenya has about 260 State corporations and the Treasury estimates that taxpayers may spend about Sh382 billion on keeping afloat the operations of 18 of them in the next five years.

The IMF has pushed Kenya to cut inefficiency in these institutions.

, including removing duplicate roles and trimming the headcount.

KQ was privatised 24 years ago but sank into debt and losses in 2014 after a failed expansion drive, costly purchase of aircraft, and a slump in travellers after a major terror attack.

The Kenya Aviation Management Bill, 2020, seeks to nationalise KQ and make it one of the subsidiaries of a holding company to be known as the Kenya Aviation Investment Corporation.

The others will be Kenya Airports Authority, which will operate all the country’s airports, including Jomo Kenyatta International Airport (JKIA) in Nairobi, under an investment arm dubbed Aviation Investment Corporation.

The Bill underwent the First Reading in Parliament on June 30, 2020, but has since run into headwinds over claims of inadequate public participation.