The Nairobi-based carrier (Code: KQ), mismanaged for years and hit hard by the Covid-19 pandemic, needs to cut down its network, ax jobs, and restructure its entire business. The all-round cleanup operation is cushioned by the government which intends to nationalize the loss-making airline after attempts in the past failed to get KQ out of the red. Kenya’s parliament backed this step in an anticipating decision taken already last fall.
Losses are nothing new to KQ. Even before the outbreak of the Covid-19 pandemic, in fact since 2013, the management announced year after year that Kenya Airways was and kept staying in the red.
For instance, in fiscal 2019, the airline posted losses amounting to US$122.2 million (€107.8 million). Now, hit by the lockdown causing the grounding of the fleet, corona could speed up the
overdue restructuring of the airline's main and auxiliary operations, according to voices from Kenyan aviation and political circles close to the government.
Equity trading was suspended
How grave the financial situation has become, is shown by a decision of the Nairobi Stock Exchange on 03JUL20 to suspend the trading of Kenya Airways shares for three months. Only hours before, the KQ stock on the bourse rose by 6.39% to Ksh3.83 per share (US$0.03), attributed to speculations that the government could buy out minority shareholders at favorable financial conditions. These are a group of 10 local banks holding 38.1% in KQ, Dutch airline KLM possessing 7.8%, a group of small investors (2.8%), and KQ staff (2.4%), while the largest chunk (48.9%) is already state-owned.
The persistent underperformance of the carrier that claims to be “The Pride of Africa” as stated on its aircraft’s hulls, has compelled the Uhuru Kenyatta government to push for the nationalization of KQ in an attempt to secure the survival of the airline and turn its loss-making business around. Having said this, it needs fresh state capital to keep KQ afloat combined with a root-and-branch reform. As indicated by sources close to the case, the contours of the rescue plan are already in the government's drawer. These are based on the Ethiopian model and provide for a holding structure with various sub-units of which Kenya Airways will become one division. The others are Kenya Airports Authorities, Jomo Kenyatta International Airport, and a centralized Aviation Services College. In a nutshell: The Aviation Holding will act as a control module and guardian of the financial architecture, while the 4 subdivisions are largely responsible for their own doing within the framework defined by the Holding.
However, before the plan is implemented, the state must acquire the minority interests in the equity. Negotiations on prices and conditions are unlikely to be easy, and they are held under time pressure, because international air traffic is picking up again.
This is exemplified by KQ’s updated July schedule, displaying flights from Nairobi to Paris, London, Amsterdam, Guangzhou, Dubai, Accra, and Lagos, all operated with Boeing 787-8s. In addition, neighboring African countries such as Tanzania or Uganda are serviced with passenger B737s. All in all, the carrier has 40 aircraft in its fleet of which 2 are Boeing-737 Special Freighters utilized on intra-African routes and to/from Sharjah in the UAE. “The twice weekly Sharjah flights are likely to be increased as demand picks up,” a release reads.
Two plagues have affected KQ’s cargo business
The carrier’s cargo business was doubly inflicted in recent months. Firstly, because a devastating locust plague swept across East Africa, devouring the harvest across extensive areas, leaving little to be exported by air. Secondly, the flower and vegetable business, Kenya's most important source of income apart from tourism, came to a virtual standstill after the pandemic stopped international air traffic. The decline in air freight revenue contributed significantly to the airline's financial woes.
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