Aircraft operated by Kenya Airways parked at Jomo Kenyatta International
Airport in Kenya's capital Nairobi. PHOTO | FILE | NATION MEDIA GROUP
Kenyan taxpayers are set to feel the full weight of owning a
bigger stake of the national carrier, as the airline reported a $130
million (Ksh13 billion) full-year loss at a time when it is seeking a
government bailout to sail through the Covid-19 pandemic.
Kenya
Airways last year underwent a series of capital and debt restructuring
that elevated taxpayers to the biggest shareholders of the financially
troubled carrier.
The Treasury last
year extended a $50 million bailout to the airline, and is currently
evaluating another $70 million funding request to help the carrier cope
with revenue loss during the coronavirus pandemic, which has disrupted
air travel across the globe.
“As you
know we have been grounded for nearly three months now and during that
time we have maintained all 38 aircrafts whether flying or not flying,
we have to pay our leases, we have to pay the insurance costs, and we
have a number of costs that don’t go away whether you are flying or not
flying. In addition, we still have to pay salaries and so we have asked
for money from the government and we are still waiting to hear about
that,” said the Kenya Airways chairman Michael Joseph at a press
briefing this week.
DE-LISTING FROM NSE
The
airline has run short of cash to finance its operations including
maintenance of aircrafts, payment of leases and employee salaries.
KQ is 48.9 per cent owned by the government and a group of 10 local banks that hold 38.1 per cent of its shares.
Other
shareholders include KLM Royal Dutch Airline (7.8 per cent), employees
(2.4 per cent) and other shareholders at 2.8 per cent.
But
the airline is set to be delisted from the Nairobi Securities Exchange
(NSE), after parliament last year approved its takeover by the State.
The
carrier, which is grappling with a negative working capital of Ksh42.15
billion, saw its net loss for 2019 widen to Ksh12.97 billion ($129.7
million) from Ksh7.58 billion($75.8 million) in 2018.
Its
management says it has halted route network expansion and embarked on a
review of the existing ones with a view to further abandoning and
reducing frequencies on what it considers to be non-profitable flights.
The
latest are part of raft of the new measures that the troubled national
carrier is considering to stay afloat in the wake of the Covid-19
pandemic that has grounded 90 per cent of its operations in the past
three months.
LONG-TERM SURVIVAL
Other
measures include diversification into the cargo business, digitisation
of its operations and the consolidation of the aviation sector assets as
the airline looks for long term survival techniques.
The
management blamed the losses on fleet ownership costs, increased costs
on new routes and frequencies and increased financing costs related to
interest on loan repayments, foreign exchange movements and adoption of
the new accounting standard — (IFRS16).
The devaluation of the airline’s assets also reduced the firm’s revenues by Ksh6.73 billion ($67.3 million).
Its
total revenues increased by 12 percent to Ksh128.31 billion ($1.28
billion) from Ksh114.18 billion ($1.14 million) helped by cargo load and
passengers fares on new routes — Geneva, Rome and Malindi — while
operating costs increased by the same margin to Ksh129.17 billion ($1.29
million) from Ksh114.86 billion ($1.14 million).
Chief
executive Allan Kilavuka said the future of the aviation industry
remains uncertain in the wake of the Covid-19 pandemic that has seen
governments put in place measures to control the spread of the virus
including suspension of international flights to enforce social
distancing regulations.
“We are not
going to invest in any new route going forward of course. We are going
to look at the routes that we have invested in and see whether we want
to continue with that investment because any route has an investment,”
Mr Kilavuka told an investor briefing in Nairobi last week.
“In
some cases we will stop flying to some destinations, in other cases we
will reduce frequencies and in other cases we will suspend operations.
There are different things we are looking at so that we can respond to
the market in the new context.”
The
airline estimates that passenger demand in Kenya alone will drop by
about 3.5 million this year, while global traffic is forecast to decline
by 4.7 percent, causing the first overall decline in demand since the
Global Financial crisis of 2008-2009, according to the International Air
Transport Association (IATA).
The
IATA also forecasts that the global aviation industry will lose $29
billion worth of passenger revenues this year, of which $40 million will
be linked to African airlines.
THREE-YEAR RECOVERY
“The
times ahead of us are very uncertain but like I said, if you look at
the immediate future the year 2020 is obvious not going to be business
as usual, the aviation sector will take time to recover,” said Kilavuka.
“There
have been very many hypotheses, some are predicting a three-year
recovery period, some are predicting a one-year recovery period but the
general consensus is that there will be a drop in passenger numbers by
at least 50 per cent. My own estimate is slightly more than that. In
Kenya in particular we see that the demand for passenger travel we
estimate that it is going to drop by about 3.5 million passengers. So it
means is that we need to adapt to this new context.”
KQ increased its losses for the year 2018 to Ksh7.5 billion ($75 million) from Ksh6.4 billion ($64 million) in 2017.
Its
net loss for the six months’ period to June 30 2019 more than doubled
to Ksh8.5 billion ($85 million) from Ksh4 billion ($40 million) in the
same period the previous year (2018).
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