A Kenya Airways plane at the JKIA in Nairobi. FILE PHOTO | NMG
Finding a cure for the ailing Kenya Airways has proven to be a big problem for the government, with the airline gobbling up billions in bailouts without much sign of a recovery.
The national carrier has also tried several turnaround measures in recent years as it looks to regain its position as an upwardly mobile African airline with global ambitions.
It has alternated between increasing flights and routes and trimming them down, inking new partnerships, mulling nationalisation then dropping the plan.
But in between the shifting strategic direction and the confidence projected by the airline’s chief executive Alan Kilavuka on the future of the airline, bulging losses, debts and empty pockets for shareholders amid State bailouts remain the reality for now.
Mr Kilavuka has maintained he is confident of turnaround prospects, even as he warns shareholders that it will take time to see the results of the measures being taken to return the airline to its former glory.
“Turnarounds by their very nature take time and effort, so it calls for patience and tenacity. If done properly and the macro environment is stable there is no reason why we will not succeed….We need time and patience,” he told the Business Daily.
The shareholders had tied their hopes of recovering the capital losses they have suffered on their stock on government buying them out in a nationalisation plan, but that has now been ruled out by the Treasury.Latest data from KQ, as the airline is known by its international code, show that out of its 80,608 shareholders, 77,037 or 96 percent are local investors.
The government is instead planning to roll out a Sh148 billion ($1.3 billion) multi-year restructuring programme that includes taking over debts, streamlining the operations of the airline and possibly seeking continental partnerships for scale.
An attempt in 2019 to restructure the airline through a Privately Initiated Investment Proposal (PIIP) failed after MPs raised doubts on the constitutionality of the plan.
The PIIP was pushing for Kenya Airways to form a subsidiary dedicated to managing operations at the Jomo Kenyatta International Airport (JKIA) for a concession period of 30 years
In 2017 KQ undertook a financial restructuring, with the State and a consortium of local banks – KQ Lenders Company – converting their loans into shareholding. This resulted in the Treasury increasing its stake to 48.9 percent from 29.8 percent.
KQ Lenders Company emerged as the second-largest shareholder with a 38.1 percent stake.
The restructuring diluted the shareholding of KLM, KQ’s long-time partner, to 7.8 percent from 26.7 percent while retail shareholders ended up with a 1.78 percent stake from 24 percent.
In the latest plan, Treasury is first lining up a Sh20 billion bailout to help the airline start off the process. For shareholders, who have been treated to twists and turns in strategy before, their quest for a return on their investments remains elusive.
This, the government hopes, will lift the airline from the financial hole it has remained in since the unravelling of the Project Mawingu.
The project, under the stewardship of former CEO Titus Naikuni, involved an ambitious fleet expansion that saw the airline purchase modern planes such as the Boeing 787 Dreamliners and the Boeing 777-300s. The latter has since been leased out to help ease maintenance costs.
The airline’s big bet on fuel hedging paired up with foreign exchange turbulence also sunk it deeper into loss after the gamble failed.
Monumental loss
The practice - which is regarded as an international best practice in the airline industry – saw prices take a downward trend, contributing immensely to a monumental Sh26 billion loss that the national carrier booked in 2014.
It has never recovered from that dent, which apart from leasing aircraft in a bid to stabilise, saw it sell its prime landing space at Heathrow Airport, London for Sh7.6 billion in 2016 to raise revenue.
After Mawingu, Mr Naikuni’s successor Mr Mbuvi Ngunze rolled out ‘Operation Pride,’ a strategy aimed at cutting down on the fleet size, routes, and staff count to make KQ profitable again.
The plan was met with stiff opposition from scores of employees who put up a spirited fight in courts after losing their jobs. Pilots too went on strike paralysing the airline’s operations and denying it much-needed revenue.
Sniffing an opportunity, KQ competitors poached the disgruntled employees leading to a massive drain of talent such as engineers and pilots to well-heeled Middle Eastern carriers.
Mr Sebastian Mikosz, a Polish national who replaced Mr Ngunze then tried to counter the losses by bringing in among other things a direct flight to New York.
But he bolted out before end of his contract at the time he was mulling to cut on some routes. Like Mr Ngunze, he too ran into problems with pilots.
“I pay these guys more than British Airways pilots and nobody says anything. The next CEO who will come will have the same situation,” he predicted.
And the prophesy has come to pass under his successor, Allan Kilavuka, as he tries to succeed where others have failed.
KQ has gradually been reinstating salaries following cuts of up to 80 percent that were initiated in 2020 after Covid-19 control measures such as lock-downs and ban on local international flights hurt revenues.
But pilots have been pushing for full reinstatement, arguing there is recovery. For shareholders, the wait for a return of their investment continues.
Airline taps new consultant
Now the most expensive restructuring exercise in the history of the airline will become of much interest to shareholders for the next five years.
US-based advisory firm Seabury Consulting has kicked off its advisory brief on the financial restructuring and revival plan for KQ in a contract expected to take six months.
Seabury has over the years been appointed by several airlines around the world including Indian international airline Jet Airways, Germany’s Air Berlin, Norwegian Air Shuttle among others where it has advised them on cutting losses, increasing revenue and restructuring their debt.
It remains to be seen whether Seabury, which touts itself as a leading global advisor to the aviation sector will succeed where others have failed.
Its entry in KQ brings back memories of McKinsey— one of the world’s biggest restructuring consultants that were at one point brought in to steer the airline through cost-cutting measures.
By the time the contract was ending after 10 months in 2017, KQ had paid the firm a staggering Sh2.3 billion as losses continued to mount.
Amid the struggles to steady its operations, the airline remains ambitious in its future plans. It is talking of lofty plans to launch electric vehicles that take off and land vertically to beat traffic from 2025.
The electric vertical take-off and landing aircraft is a new technology that uses electricity to hover, take off, and land, making it easier to move within cities while avoiding traffic jams.
This adds to growing list of the to-do things that the airline has to get right if it has to get its act together.
Last year, Parliament backed a Cabinet decision to amend the air services agreement between Kenya and America that will see KQ expand its route network beyond New York, the only city where it currently flies.
Delayed bailout
Amid the turnaround plans, for now, shareholders of KQ remain trapped in the company whose shares have been suspended from trading for another year, with no clear path to how investors will be able to exit the troubled airline.
A delay by the government to disburse the Sh20 billion bailout package to KQ recently saw the national carrier resort back to pay cuts.
This forced the airline to slice the workers’ pay in cash preservation efforts with the promise of settling the deducted pay once the Treasury wires the bailout billions.
KQ had resumed full payment of workers’ salaries in December 2021 after a protracted battle with the pilots’ union.
The union has been demanding the reinstatement of their salaries to 100 per cent, saying that the airline had started recovering from the Covid-19 disruptions.
bnjoroge@ke.nationmedia.com
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