Kenya Airways stock dips 30pc as airline flies into turbulence

Money Markets

Kenya Airways chief executive officer Mbuvi Ngunze (left) and group finance director Alex Mbugua during the release of the firm’s half- year financial results last year. At Sh7.75, the airline’s stock is at its all-time low. PHOTO | FILE 

By CHARLES MWANIKI, cmwaniki@ke.nationmedia.com

In Summary

• Kenya Airways share price has been battered by several negative reports.

Kenya Airways has shed 30 per cent over the past two months reverting to a Sh7.75 low on a series of negative corporate reports, erasing price gains made between November last year and February 2015.

The KQ stock had climbed to a six- month high of Sh11 on February 6 on the back of positive investor sentiment driven by the falling fuel prices and misplaced hope of swift end to the Ebola lockdown that robbed the airline of key West African routes from late last year.

Analysts had pointed out the carriers’ fundamentals were beginning to hint at a respite from its dire financial performance which saw the airline report an after-tax loss of Sh10.5 billion for the half year to September 2014. In the past two months however, the airline’s financial woes have become more apparent and wiped off gains the share had made.

“The dip we are seeing is brought by investors concern over the negative news around the airline, like the challenges with staff, and the gloomy outlook on tourism which is an issue that affects the airline,” said Standard Investment Bank (SIB) analyst Eric Musau.

“KQ have big financing and operating costs, and therefore need their aircraft to operate at higher capacity. Investors weighing these cost demands against the negative fundamentals would get concerned.”

He added however that the announcement of full-year results soon could yet change the negative sentiments, depending on the direction of the numbers.

The latest indication of KQ’s financial distress came at the end of last month when a pilots association revealed the airline had not remitted to banks money it deducted from monthly salaries to service loans.

READ: Broke Kenya Airways sinks deeper into debt to pay staff

Kenya Airways on its part said it had alerted staff of the delay in making the March payments to banks, arising out of cash flow constraints. “In the current context of a weak operating environment, the airline has had to prioritise its payables, including payments for staff-related deductions,” said KQ chief executive officer Mbuvi Ngunze in a statement. 

Mr Ngunze has also revealed the airline is relying on debt to pay its workforce of nearly 4,000.

The airline has had to ward off threats of labour unrest following the retrenchment of 10 of its older pilots due to a fleet modernisation programme.

A spate of terror attacks in Kenya—the latest being the Garissa University College massacre last week—have brought travel advisories hitting tourism and the service sector hard. They have denied the airline passenger numbers from its European routes.

“We are more bearish on the service sector. Insecurity is of grave concern …it may take a while to recover especially on travel and tourism,” said Genghis Capital analyst Silha Rasugu.

Its stock has mainly been traded by local investors, with bargain hunters having bought strongly in the third quarter of last year attracted by the low prevailing price.

Such investors tend to book short-term profits and exit stocks at the earliest sign of trouble. Data from SIB for the first quarter of this year shows 90 per cent of trading on the KQ share was done by local investors.