Kenya Airways to restructure $1b debt in turnaround plans

A Kenya Airways plane at JKIA, Nairobi. PHOTO | FILE 

By JAMES ANYANZWA

In Summary

• The airline, which is listed on the Nairobi Securities Exchange, has been making losses since 2013.
• The airline plunged into insolvency last year as its total liabilities exceeded assets by Ksh39 billion ($390 million).

Kenya Airways is looking to restructure its $1 billion debt and bring in expertise from its Dutch partner KLM in a bid to return to profitability.

The airline’s outgoing chief executive officer, Mbuvi Ngunze declined to disclose details of the debt treatment but it is believed it will involve shareholders injecting some capital and leaning more on longer term financiers.

“The capital optimisation will involve us talking with a number of our financiers, a number of our stakeholders about how we can reduce the overall debt of the business and improve liquidity of the company,” Mr Ngunze told reporters in Nairobi last week.

“We can’t discuss the details of this until we are at the endpoints. When this would be completed is dependent on the negotiations. I do not want to put a date or timeline you would hold us to account on,” he said.
However, the negotiations appear to be at an advanced stage after Mr Ngunze said he would remain in the company until the end of July to oversee the talks on the terms and tenor of the debt used to acquire new aircraft.

The debt combined with low business has rendered the airline technically insolvent.

The airline, which is listed on the Nairobi Securities Exchange, has been making losses since 2013.
The poor performance has been partly blamed on uncompetitive pricing, a poor investment strategy and depreciation of the local currency, translating into foreign exchange losses and losses associated with a poorly calculated strategy on oil price fluctuations.

The airline’s principal shareholders are Kenya’s National Treasury and Dutch airline KLM, which own 29.8 per cent and 26.73 per cent shareholding respectively.
Its stock on the Nairobi Securities Exchange was last week trading at around Ksh6.6 ($0.06) per share.

“We have gone through tough times. We are seeing some light at the end of the tunnel but we still have some way to go.  We probably  have another six to nine or 12  months before we really see ourselves coming out of this,” said Michael Joseph, the airline’s chairman.

The airline plunged into insolvency last year as its total liabilities exceeded assets by Ksh39 billion ($390 million).
During the six months to September 2016, the airline spent Ksh17 billion ($170 million) on loan repayments, a 54 per cent growth from the Ksh11.3 billion ($113 million) it spent on debt servicing in the same period the previous year.

“The turnaround is actually happening and the result of that turnaround is reflected in these results. What we are focused on now going forward is capital optimisation,” said Mr Ngunze.

• READ: Kenya Airways half-year losses narrow to $47 million