BAIL OUT

KQ gets government assurance as aviation industry tumbles

The carrier needs about Sh47 billion for a full turnaround.

In Summary

•The national carrier has grounded its fleet after ban on international flights.

•Transport CS James Macharia says the government will support Kenya Airways,a strategic asset for the country's economy.

A Kenya Airways Embraer plane at the airline's JKIA hanger. KQ has grounded its fleet after ban on international flights over Covid-19/
A Kenya Airways Embraer plane at the airline's JKIA hanger. KQ has grounded its fleet after ban on international flights over Covid-19/
Image: FILE

The government will sustain Kenya Airways, Transport CS James Macharia has said, giving hope to the struggling national carriers whose poor performance has been worsened by the global coronavirus pandemic.

Even before the global financial problems occasioned by the pandemic, KQ, as it is known by its international code, had written to the National Treasury and Transport Ministry, seeking a bailout from the government to save it from collapse.

It is also seeking tax breaks and waivers, mainly on navigation fees and landing charges at airports.

 

In an interview with Citizen Television, Macharia promised government support, terming the carrier as a 'strategic asset.'

“Kenya Airways is a strategic asset for this country in which our country has got strategic interest, and for which it is a national flag carrier. We have to support Kenya Airways,” CS Macharia said.

He said the airline does not only support air transport and connectivity, but also a major link to the country's tourism sector, floriculture and other key sectors of the economy which depend on the national carrier.

“We must go beyond the profits and look at what Kenya Airways is bringing to our country,” the CS said, noting that the government has previously supported KQ.

The loss-making national carrier needs up to $450 million ( about Sh47billion) to get operations back to profitability, according to chairman Michael Joseph.

We need to get rid of the debt at KQ to get a turnaround. A better balance sheet can aid in replacing aging aircraft,” he said recently.

 
 

Kenya Airways' net loss for the year ended December 2018 rose to Sh5.9 billion from Sh5.1 billion.  The previous year.

It reported a Sh8.6 billion loss for the six months to June 30, 2019, sinking deeper in the red as increased operating costs came back to haunt the national carrier.

The ban on international flights, which has been extended by another 30 days, and restricted domestic movement will see KQ's 36 aircraft remain grounded.

The planes include nine Boeing 787 Dreamliners, 10-Boeing 737 aircraft and 17 Embraers.

“We will have to place 50 per cent of our aircraft on long term storage while the rest will undergo maintenance,” CEO Allan Kilavuka said.

KQ made Sh42.6 billion in passanger revenue for the period ended June 30 2019.

This translates to an average Sh7.1 billion a month and Sh236 million a day, revenues that will be lost.

More than 3,000 employees of the airline are currently furloughed, with management taking a 75 per cent pay cut. Kilavuka has taken an 80 per cent pay cut effective April 1.

The bailout being sought will help in among others, maintain the grounded aircrafts, pay staff salaries and pay security, water and electricity bills.

In December, KQ warned its 2019 earnings are likely to fall by at least 25 per cent, meaning its could report a loss of more than Sh7.4 billion.

It had in February received a Sh5 billion loan from the government to facilitate engine overhaul of its E190 Embraer fleet.

Even before the pandemic, we had provided support for Kenya Airways,” Macharia said.

KQ now joins a list of global leaders which have sought government bailout. Among them is British Airways and Virgin Atlantic, which has have grounded 80 per cent and 75 per cent of their fleets respectively.

With over 40 airlines around the world grounding their entire fleets, the International Air Transport Association(IATA) estimates the global air transport industry will make losses of between $63 billion(Sh6.67 trillion ) and $113 billion (Sh 13.78 trillion) in 2020 on passenger business alone.