National carrier Kenya Airways requires up to Sh100 billion new funding to stay afloat, Standard Investment Bank analysts have estimated.
The amount is required in the form of fresh capital injection to reduce the carrier’s debt burden.
KQ may also need to significantly scale down its operations and cut on operating costs to return to profitability.
The airline on Thursday reported a Sh25.7 billion after-tax loss, which saw it sink into a Sh5.9 billion negative capital position.
“Kenya Airways needs new funds in the region of Sh80 billion to Sh100 billion,” said Eric Musau, an analyst at SIB.
Treasury secretary Henry Rotich, whose ministry has a seat on the KQ board, said at the weekend that a plan was underway to inject up to Sh60 billion into the company.
The airline also announced last week that it had signed a Sh20 billion loan from the African Export Import (Afrexim) Bank.
The anticipated new round of equity financing is expected to see the government’s ownership in KQ go above 50 per cent from the current 29.8 per cent.
This, analysts said, is based on the expectation that retail investors would avoid pumping new money into the airline having booked major losses that have culminated into their wealth being wiped out in the year ended March.
“The key is to reduce the debt burden as much as possible. The company also needs to take some tough decisions and become a smaller airline,” said Mr Musau.
He said a potential rights issue could see the government raise its ownership above the 50 per cent mark, diluting the combined ownership of other investors to less than 10 per cent.
Mr Musau said Dutch airline KLM — currently the second largest shareholder in KQ with a 26.73 per cent stake — could also find it difficult to provide its share of new funding to the Nairobi Securities Exchange-listed carrier.
Should the Treasury decide to bail out the airline, it could be forced to make major revisions of other expenditure items or borrow more since rescuing the airline was not provided for in the current budget.
Other analysts say the government can avoid immediate fundraising pressures by guaranteeing a long-term loan for KQ, with an option for the lenders to convert their debt into equity down the road.
Such investors would require the government to guarantee the convertible debt to cut their exposure.
The extent to which the Treasury participates in saving KQ will determine whether the airline will be nationalised or retain its status as a listed firm with a significant number of retail investors.
The company had 74,036 Kenyan investors as of May, with 3,149 local institutions also holding the stock in the same month.
Shareholders are waiting to take the cue from Treasury’s action on the airline, which will determine the ultimate fate of their investment.
KQ’s record-setting Sh25.7 billion loss in the year ended March has wiped out shareholders’ wealth.
This means that if the airline was liquidated today, shareholders would be left with nothing and creditors would still be asking for an additional Sh5.9 billion from them.
The firm’s share price Monday closed at Sh5.4, losing a cumulative 20 per cent since the announcement of the loss on Thursday last week.
The performance has been linked to KQ’s ambitious expansion plan that has seen it take billions of shillings in debt to acquire new aircraft, including Dreamliners.