IN RED

KQ to sink further in losses despite multi billion restructuring

The loss making nature of the airline has forced the government to rethink management strategy, with the Parliament voting for a plan to nationalise the carrier by April 2021

In Summary
  • This is the second year in a row the National Carrier is issuing profit warning, after last year's loss rose by 15 per cent to hit Sh5.9 billion compared to Sh5.1 billion in 2017
  • The Polish manager Sabastian Mikosz brought in June 2017 to resuscitate the airline has since thrown in towel, and is expected to exit end month.
KQ plane departs from JKIA.
KQ plane departs from JKIA.
Image: FILE

Kenya Airways is expected to sink further in losses this year, despite conducting a massive restructuring plan in 2017 that was expected to shore up the firm's bottom line in five years.

Yesterday, the airline known internationally as KQ issued profit warning for the financial year ending December 31, meaning its loss will rise by at least 25 per cent, considering that it reported a net loss of Sh5.9 billion last year.

The announcement means, the firm is likely to record a net loss of at least Sh7.3 billion in the financial year ending in next 12 days.

 

In a statement to investor KQ chairman Michael Joseph said although the airline has realised improved revenue, profitability was constrained by the increased competition in the airline area of operation, which has increased pressure on pricing in order to remain competitive.

''The board bring to the attention of the public that the earnings for the current financial year are expected to be lower by at least 25 per cent than earnings reported in 2018. This is based on forecasted financial results for the year ending December 31,'' KQ said.

This is the second year in a row the National Carrier is issuing profit warning, after last year's loss rose by 15 per cent to hit Sh5.9 billion compared to Sh5.1 billion in 2017.

The airline continues to sink deeper in losses despite conducting Sh200 billion restructuring that saw it convert most of its debt into equity and a government guaranteed loan of $750 million (Sh75 billion) from Export Import Bank of United States (US-EXIM Bank) for the fleet of wide-bodied aircraft.

The plan conducted in 2017 was meant to push the airline bank to its wheels after reporting the highest loss in Kenya's corporate scene. It had reported a loss of Sh26 billion in the year ended March 31, 2016.

The government converted $267 million (Sh26.7 billion) of loans into a 19 per cent shareholding of new shares in the airline, while the 11 Kenyan banks exchanged unsecured loans of $167 million (Sh16.7 billion), from a total of $217 million (Sh21.7 billion), into 38.1 per cent of shares through an off-balance sheet special purpose vehicle.

Some of the Kenyan banks also provided a $175 million (Sh17.5 billion) multi-purpose loan, also backed by government guarantee.

 

The restructuring changed the firm's shareholding structure, with the National Treasury's stake rising to 48.9 per cent, Local Banks 38.1 per cent, Dutch airline KLM 7.8 per cent while minority shareholders remained with 5.2 per cent.

The loss making nature of the airline has forced the government to rethink management strategy, with the Parliament voting for a plan to nationalise the carrier by April 2021.

Nationalisation will exempt Kenya Airways from taxes on engines, maintenance and fuel, allowing it to sell cheaper tickets to match competition from her regional peers.

The Polish manager Sabastian Mikosz brought in June 2017 to resuscitate the airline has since thrown in towel, and is expected to exit end month.

On Monday, KQ board appointed Allan Kilavuka as acting chief executive as it continues with recruitment process. He is also managing JamboJet, KQ's subsidiary flying locally and regionally.