Kenya: Taxpayers to Bailout KQ as It Sinks Into a Further U.S.$130 Million Loss, and Still Grounded

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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