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Covid-19 leaves the airline industry in financial turbulence

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The airline industry faces its gravest crisis. FILE PHOTO | NMG

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Summary

  • The health crisis has clipped the wings of most carriers with operators warning that unless the State comes to their aid, they may not fly again once the dark clouds pass.

The impact of the Covid-19 pandemic on the Kenyan air travel industry is slowly unravelling with airlines projecting a steep climb back to normalcy after months of disruption.

The effects have been so dire that the domestic operators now require a financial loan of Sh3 billion to resume operations once the coronavirus containment measures are relaxed, with the industry data projecting that African airlines have so far lost Sh860 billion as at last month.

At the Jomo Kenyatta International Airport, the passenger business has been severely hit, losing up to 80 percent of traffic at the facility between March and May.

Data from Kenya Airports Authority (KAA) indicate that the number of passengers plummeted from 550,00 in March to a paltry 14,300 in April after domestic carriers were grounded following restriction in movement in and outside Nairobi.

However, on the other hand, cargo services have not been immensely affected after the government allowed freighters to continue with their operations at the JKIA. Data from KAA indicate that cargo has only been down by 18 percent between March and May.

“Cargo business was not hit much because of the ongoing operations at the airport as the government did not restrict the freighters from operating,” said KAA acting managing director Alex Gitari.

The first casualties of Covid-19 in the aviation sector were the workers, who either had to contend with a salary cut, being sent on unpaid leave or sacked as companies sought to conserve cash in the wake of a pandemic.

The industry statistics show that on yearly comparison, cargo handled in 2019 was 90,000 tonnes compared with 74,000 tonnes that was evacuated through JKIA between January and May.

The minimal decline in cargo is attributed to an increase in number of freighters to ferry the consignment following high demand for freight services amid low aircraft capacity.

Foreign carriers who had suspended their flights to Nairobi started flying back as European countries eased lock-downs, pushing up demand for fresh produce.

The latest entrants were British Airways and Singapore Air which had stopped plying the route following restrictions that had been put in place and low demand for horticultural produce in Europe after many orders were cancelled.

The move boosted aircraft movement at JKIA with data from KAA indicating that airplanes at JKIA stood at 65 percent the usual number in three months to May, largely because of cargo airlines.

Carriers have also increased their frequencies with Ethiopian Airlines flying daily from JKIA, KLM three times a week with Kenya Airways (KQ) also making a couple of trips to Europe and China and recently started plying to United Arab Emirates with two flights a week.

An increase in number of airlines has come as a relief to exporters as the freight charges have now dropped to between $2.8 and $3.5 per kilogramme of cargo from $5 in March for the same quantity. However, this is still considered high as ordinarily the cost is normally about a dollar.

The International Air Travel Association (IATA) has since March been warning of a dire consequence for the sector if respective governments will not move in to support their national carriers through financial bailouts.

“The airline industry faces its gravest crisis. Within a matter of a few weeks, our previous worst case scenario is looking better than our latest estimates. But without immediate government relief measures, there will not be an industry left standing.

“Airlines need $200 billion in liquidity support simply to make it through. Some governments have already stepped forward, but many more need to follow suit,” said IATA’s director-general and chief executive Alexandre de Juniac.

The National Treasury said last month that Kenya Airways #ticker:KQ was seeking over Sh7 billion in bailout in order to survive in the turbulent times.

The airline’s chairman Michael Joseph said they had requested for Sh9 billion as a bailout package and that so far KQ had received Sh5 billion in January with the balance expected to be issued in July.

“We asked the government for some support in January for maintenance of our Embraer engines to keep us flying as they were due for overall maintenance, we were loaned Sh5 billion and we are still waiting for the balance,” he said during an investor briefing.

When the pandemic eventually comes to an end, it will leave a trail of disruption on its way. Already, KQ has announced that it will be making some adjustments on its routes by either stopping, cutting on frequencies or suspending flights all together.

The carrier, which recently reported a Sh12.9 billion loss for the financial year ended December 2019, up from Sh7.7 billion in 2018, said it needs State bailout to remain afloat. The losses were attributed to increased cost of operations.

A legal framework for the nationalisation of Kenya Airways was set for discussion yesterday when Parliament resumed. The outcome could change stakes for key shareholders that include a consortium of local banks and Royal Dutch Airlines.

Under the plan, the government, which owns 48.9 percent of KQ, is expected to buy out the remaining holders of 51.1 percent of the shares and form Aviation Holding Company to run the national carrier and Kenya Airports Authority (KAA), which manages airports in the country.

Kenya Association of Air Operators (KAAO), a lobby of commercial airline operators, said they were in a deep financial hole and need a loan from the government for training of their pilots, servicing of the aircraft and purchasing of spare parts.

“We need a soft loan from the government with a friendly interest rate to jump-start our activities, without that, it might be difficult for us to get back to business once the restrictions are lifted,” said Kenya Association of Air Operators (KAAO) executive secretary Col (Rtd) Eutychus Waithaka.

KAA said it will seek government financial support in the next six months if the normal operations would not have resumed in the aviation sector.

The agency said the cash reserves that they have at the moment can only last their operations for the coming six months from now.