KENYA Airways is banking on a new business model, Sh51.08 billion ($500 million) fresh cash injection and sale of assets to reduce over-reliance on debt in the next 12 to 18 months, to salvage it operations.
Chief executive Mbuvi Ngunze is optimistic that the recovery plan, jointly being implemented by McKinsey’s Recovery and Transformation Services which, was hired last August, will turn around KQ’s dwindling fortunes.
“If I look at the way we are doing the business, there is business in Africa and international markets,” Ngunze said in an interview published in the Uganda’s Daily Monitor this week. “We must find the most sustainable profit business model for the future considering the competitive environment and the changes.”
The struggling national carrier has been relying heavily on debt to finance its operations following the launch of its 10-year, resource-draining expansion plan dubbed Project Mawingu in 2011.
The plan, which has since been dropped, was to position Nairobi as a hub for flights from Asia into Africa and Europe – apparently aping the strategy adopted by Gulf Airlines through their base in Dubai.
KQ’s expansion, however, coincided with deteriorating security perception which hurt tourism – its lifeblood – hitting revenues hard.
The situation was exacerbated by a fierce fire on August 7, 2013 at its base at the Jomo Kenyatta International Airport which injured the airport’s track record in aviation safety management.
Thatwas capped with the deadly terrorist attack on the Westgate Shopping Mall a month later on September 21 and Ebola outbreak in West Africa – a major route – later in December, putting it in a “perfect storm”, according to Ngunze.
The result has been a growing debt against flat earnings. Last September, for example, debt stood at Sh167.89 billion – Sh20.1 billion more than a year earlier – against Sh56.72 billion in revenues, Sh70 million lower than Sh56.79 billion previously.
“The next 12 to 18 months will be very critical to us in terms of coming back to profitability but also restructuring the balance sheet,” Ngunze said.
The airline is expected to later this month hire an international transaction advisor to help it raise capital in debt and, the CEO told the Business Daily.
“KLM and Kenya Airways will be part of this but there’s need for others to participate since the capital requirement is quite significant, in the region of Sh60 billion,” he said.
The government, which owns 29.80 per cent of KQ, has however said any cash bail was conditional on overhaul of the board and management.