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Flying Kenya Airways out of bumpy financial clouds

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As Kenya Airways #ticker:KQ prepares for another round of state bailouts, we sit down with the national carrier boss and discuss about when he thinks the bailouts will stop and KQ will be ready to stand on its feet.

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LET US TALK ABOUT THE NEW ROUND OF BAILOUTS WHEN WILL KQ STOP REQUIRING BAILOUT?

From 2020, it was very difficult for aviation in the world. I believe 95 or 99 per cent of airlines, first of all, made losses including the very big ones but they got huge government bailouts.

I just want to dissuade people from thinking that, and I know Kenyans get tired because of these bailouts, but it was a worldwide phenomenon, without those bailouts the airlines would have collapsed, and same with us.

In our case it’s loans, in some cases, it’s just capital injection.

SO THE BAILOUTS ARE ACTUALLY LOANS, HOW MUCH SO FAR AND DO THEY EARN INTEREST?

Yes, it is a loan, earning interest but that is not something we can share. So far we have received about Sh20 billion from the beginning of 2020.

But actually, if you can get a list of all other bailouts including some of the airlines in Africa and then you compare it with ours, you would be surprised. And like you said it is a loan which we will pay back at an opportune time.

HOW MUCH MORE SUPPORT DO YOU EXPECT AND WHEN IS IT LIKELY TO COME IN?

So the supplementary budget has put I believe Sh20 billion of course parliament has to approve that and that is a parliamentary process so I cannot tell how long it will take.

WHAT ARE THE SPECIFIC CONDITIONS FOR THE SUPPORT FROM GOVERNMENT?

Because the government is going through an economic recovery programme with the IMF, any support that they are going to extend to us will fall under that programme. They require us to abide by conditions that will necessarily ensure that efforts to turn over the company are successful.

We do not want to come back and do this again. We do not want another attempt because this is something we want to do now and make it sustainable going forward.

And that is why the government is interested to make sure that we have someone like Seabury to support us in ensuring that we have a permanent reduction in costs of doing business as opposed to a one-off reduction of costs.

DO YOU ANTICIPATE LAYING OFF MORE WORKERS THROUGH THE RESTRUCTURING PROCESS?

There is no hard and fast rule, nobody is dictating and saying you are going to cut 30 per cent or you are going to send away a hundred people. That is not what we are doing here.

We are setting at the best possible network, best possible schedule, best possible fleet size and therefore the appropriate staffing. So who knows what that will turn out to be? We are still waiting to see how that will turn out to be.

But the most important thing is to look at the productivity of staff. As opposed to numbers. How can we improve staff productivity and if you improve staff productivity it will improve the staffing problem.

GIVEN THAT THIS PROCESS IS NOT ENTIRELY NEW, WHAT ARE THE IDEAL NUMBERS PROPOSED BY THE SEVERAL CONSULTANTS WHO HAVE MADE REVIEWS IN THE PAST?

We did a lot in 2020 because remember we were 4000 employees and now we are 2600, so well over a thousand employees have either retired, did not renew their contracts or took voluntary early retirement. So the staff numbers went down significantly for example.

There are many things that we did and so anything that is going to be proposed is going to be over and above that. Or maybe we just do it more intensely. But we believe we have done quite a lot and everybody acknowledges it.

ARE THE UNIONS SUPPORTIVE OF THIS CURRENT TURNAROUND PLAN?

Like I mentioned we are still not clear about the staffing and we are engaging them so we gave them what we know so far. I think it is in everybody’s interest for the airline to turn around and to basically save the airline and make sure it is going to be there tomorrow for all of us and that is the kind of attitude that we are demonstrating.

That it is not about letting people go because the last thing that I would like is to let people go. But it is about making sure that we have the best-fit airline for the future.

AND WHEN THE MONEY COMES IN WHAT ARE YOUR PRIORITIES? IS IT GOING TO OPERATIONS OF THE AIRLINES OR THE DEBTS?

Like you rightly said there are many priorities, very many. Some of the money will go to support operations some of them to do some of our overdues, to reduce because Sh20 billion is not going to be sufficient to pay everything but to reduce. So operations for working capital and to pay the loans and overdues.

WITH THE NATIONALISATION PLAN ABANDONED WHERE DOES THAT LEAVE KQ LISTING AT THE NAIROBI SECURITIES EXCHANGE?

We are currently suspended for six months and this will be revisited after that period.

ALSO, LINKED TO THE END OF NATIONALISATION PLANS, HAS IT AFFECTED KLM DECISION TO EXIT?

The government suspended the plan and as shareholders, they will determine the future of the plans

FINALLY, REPORTS THAT KQ IS THE MOST EXPENSIVE AIRLINE TO FLY GIVEN THAT YOU ARE TRYING TO RECOVER AND NUMBERS ARE LOW, DO YOU SEE A REVIEW OF THE FARES AS A STRATEGY?

The reports are based on biased data that compares two different products, that is one is a non-stop travel from our hub while the other has to go through their hubs. Also, we have to look that they are comparing the same class of tickets.

Having said that we are always looking for opportunities to reduce our costs and ensuring our customers are getting the best possible service and options.

WHAT HAVE YOU ACHIEVED SO FAR IN ACTUALISING THE PARTNERSHIP WITH SOUTH AFRICA AIRLINES?

We have drafted extensive codeshare arrangements across Africa that we are going to roll out in the next few weeks, we’ve looked at opportunities for cargo, and are still exploring areas like how can we do technical support for each other.

These are immediate areas where we are looking at low-hanging fruits where we can start working together as we immunize the relationship against any anti-competitive laws.

After that, we will continue to do roadshows to demonstrate the viability of what we are trying to set up and then move progressively.

We also want to try and clean out as much possible the current state of both airlines in Kenya Airways and South Africa so that by the time we consolidate, it's going to be a lot cleaner so we don’t carry legacy issues into the new setup.

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