KQ hires American turnaround consultancy

Corporate News

Kenya Airways chief executive Mbuvi Ngunze. PHOTO | FILE 

By MUGAMBI MUTEGI, pmutegi@ke.nationmedia.com

In Summary

• Kenya Airways has hired Seabury to evaluate sales, ticketing and network planning functions.

Kenya Airways has hired an American consultancy to advise on the restructuring of its operations, as the management struggles to turn around the fortunes of the troubled airline.

New York-based Seabury has been picked to evaluate KQ’s sales, ticketing and network planning functions and benchmark them with best practices in the airline industry.

The firm’s consultants have been working at KQ for the past six months hand in hand with a global financial adviser that the carrier hired around the same time to restructure the airline’s debt and retire short-term loans.

The national airline, which posted a net loss of Sh10.5 billion in the half-year ended September, has secured a Sh4.2 billion soft loan from the Treasury and another injection of an undisclosed amount from KLM, which together with the government are the joint anchor shareholders of the company.

“The Seabury team will looking at all our commercial business and benchmarking with the industry,” said KQ managing director Mbuvi Ngunze at a media briefing on Wednesday.

“They will then give recommendations based on that audit. They will highlight the areas where there is scope for improvement.”

Mr Ngunze said the consultants are interrogating KQ’s sales as well as revenue management, the variables that the carrier uses to assign seat prices.

The consultants brief also include network planning – a process that will see them answer when, how and why KQ plies its destinations and how efficiently this is done.

Seabury is a 20-year-old company that offers advisory services in sectors like aviation, aerospace, defence, financial services, maritime and logistics, among several others.

The company guides airlines on aircraft acquisition and sale, technical support as well as network planning. Its clients include Virgin America, Cathay Pacific and United Airlines.

“Seabury helps its aviation clients react…accurately to changing industry conditions, and implement the most effective strategies in a manner that is both measurable and sustainable,” the company says on its website.

The Treasury last week announced that it would lend KQ Sh4.2 billion in an effort to help it surmount challenges brought about by “the Ebola epidemic and the slump in tourism.”

The loan is expected to spare the airline the pain of taking in more expensive commercial loans that would put a strain on its cash flows. The airline’s current liabilities stand at Sh70 billion, Sh40.7 billion of which is short-term loans.

KQ in October last year engaged the services of a consortium made up of a bank and a financial adviser (both international) to help restructure its expensive short-term debt and secure longer-term funds in the form of debt, equity or both.

This consortium was expected to extend the bridging loan by the first quarter of 2015 but “negotiations are yet to be concluded but are in the final stages”, according to the airline.

The recent loan from government (which owns 29.7 per cent of KQ) and KLM (which has a 26.73 per cent stake) is now expected to offer the airline temporary relief as it awaits conclusion of these negotiations.

“The government loan has been extended to us at commercial rates,” said Mr Ngunze, declining to comment further on the matter saying the company is in the closed period ahead of release its full-year results later this month.

KQ made a net loss of Sh10.5 billion in the half-year ended September, reversing a net a profit of Sh384 million a year earlier. A profit warning issued in November 2014 means it is expected to report a full year loss of at least Sh4.3 billion.

The national carrier’s earnings were affected by slow growth in passenger numbers in the wake of heavy investment in new aircraft as well as revenue losses in West African operations after the Ebola outbreak.