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KQ likely to take Sh83bn sales hit from virus effect

Kenya Airways planes at JKIA
Kenya Airways planes at JKIA in Nairobi. FILE PHOTO | NMG 

Kenya Airways (KQ) #ticker:KQ stands to lose over Sh83 billion in sales this year if the government lifts the ban on domestic and international flights in June. The outlook could be worse should the coronavirus pandemic restrictions be extended during the next update scheduled for June 8.

KQ Chief Executive Officer Allan Kilavuka said both revenue and passenger numbers will drop by 65 percent in 2020 as the airline struggles to remain afloat in the wake of the pandemic.

The national carrier’s sales stood at Sh128.3 billion last year, an indication that the 65 percent cut would shave Sh83 billion from its revenues.

“Assuming we resume our services by June 8, then we expect our revenue to be down by at least 65 percent in 2020,” said Mr Kilavuka.

Kenya Airways’ June 8 date is tied to the end of the 21-day extension of dusk-to-dawn curfew and a restriction on movement in and out of five counties worst hit by the Covid-19 pandemic, including Mombasa and Nairobi.

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Kenya has so far recorded 1,471 positive Covid-19 cases and 55 deaths, far fewer than in comparably-sized countries in Europe, Asia or the Americas.

On Wednesday, however, the country reported the highest daily coronavirus cases since March 12 when it reported its first case. Should the cases continue on that trajectory, the government is likely to extend the restrictions on movement and business operations. This could further hurt organisations like KQ.

The national carrier has been operating only a handful of cargo flights after the government stopped all international flights in mid-March to slow down the spread of the disease.

The airline has already furloughed most of its workers and reduced staff salaries by as much as 80 percent, including for Mr Kilavuka.

The coronavirus crisis has hit the entire global aviation industry, but Kenya Airways was already in a weak financial position long before it started, reflected in the widening of its loss to Sh12.9 billion last year from Sh7.5 billion.

Mr Kilavuka reckons that Kenya Airways sales are so far $150 million (Sh16 billion) down compared to the same period last year. On resumption, the carrier will drop some routes and reduce frequencies on others given the dim travel outlook after Covid-19.

Mr Kilavuka said the airline will start with local flights, then move to the region before expanding outside the continent.

The government has been working on a plan to re-nationalise the airline, which is one of the biggest on the continent, to save it from mounting debts that had already been restructured in 2017 in an attempt to save the business.

The airline, which has been struggling to return to profitability and growth, in March applied for a Sh7 billion State bailout after the grounding of its flights. On Monday, it emerged that the Treasury has refused to offer a commitment which could deepen the firm’s financial woes.

Treasury Secretary Ukur Yatani said the State was keen on a long-term solution anchored on nationalisation of Kenya Airways, arguing that the carrier’s financial troubles go beyond the corona-related woes.

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

“We asked 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.

Kenya wants to emulate countries like Ethiopia, which runs air transport assets — from airports to fuelling operations —under a single company, using funds from the more profitable parts to support others.

Under the model approved by MPs, Kenya Airways will become one of four subsidiaries in a holding company.

The others will be Jomo Kenyatta International Airport, an aviation college and the Kenya Airports Authority, which will operate all other airports.

Kenya Airways was privatised more than 20 years ago but sank into debt and losses in 2014 after a failed expansion drive and a reduction in the number of travellers.

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