- On Friday, the airline announced a Sh26.6 billion capital injection from the government
- It will receive a similar amount in the upcoming financial year
Kenya Airways will trim its network, rationalise frequencies of flights and operate smaller fleets in yet another government attempt to shore up the national carrier's financial position.
In a message to the staff on Friday, the airline's chief executive Allan Kilavuka said the government had with conditions allocated the airline Sh26.6 billion in the supplementary budget for the current financial year.
"The financial support will help the airline strengthen its cash flow and speed up much-needed reforms including its network, fleet and operations. Other areas focus on cost restructuring, productivity and efficiency,'' Kilavuka said in a note seen by the Star.
Similar sentiments were shared by Transport Cabinet Secretary James Macharia who on Friday termed KQ, as the airline is known internationally as one of the country's key strategic facility.
"Kenya Airways is essential to helping other sectors of the economy grow. The government's support is to ensure this strategic asset is saved and jealously guarded,'' Macharia said.
Last year, the National Treasury committed to bailing out the airline after shelving plans to nationalise it.
According to a plan presented to the International Monetary Fund (IMF) last year, the exchequer said it was helping the airline source for reputable consultants to come up with a viable turnaround plan.
The Kenyan government agreed to assume $827.4 million of KQ's debt and provide financial support in FY2022 and FY2023.
The international lender revealed that the Kenyan government will provide $473 million to handle the airline's payment obligations and restructuring costs as part of the assistance package.
“The authorities have indicated their intentions to put in place strong safeguards to ensure progress under this plan, including tight links between phased financial support and performance on restructuring steps,” IMF's review report reads in part.
On Friday, KQ said it will for the second time work with Seabury Consulting, a subsidiary of professional services giant Accenture to reorganise the company.
The consultancy firm will spearhead Kenya Airways' debt restructuring, which is estimated to cost upwards of $1 billion.
In 2015, KQ hired the American consultancy to advise on the restructuring of its operations after Treasury pumped Sh4.2 billion and other capital injections from KLM.
The firm had posted Sh10.5 billion loss in the half-year results.
Yesterday, both the board and management declined to give more details about Seabury's deal, saying the matter lies with the National Treasury.
"Sorry, I am not able to answer any of your questions,'' KQ board chairman Michael Joesph said in a message.
We had sought to know why Seabury was selected, some of its findings and recommendations in the previous assignment and the consultancy cost to be incurred.
A senior official at KQ said the airline will be reviewing the business plan, adding that they are not in a position to share more details.
Attempts to reach the National Treasury hit a snug with our calls and texts unanswered by the time of goin to press.
This is not the first time KQ is undergoing debt restructuring.
In mid-2017, KQ received a boost after 11 local banks agreed in principle to convert into equity most of the $225 million of loans they had made to the loss-making airline.
The banks’ debt-for-equity swap was part of a broader restructuring that involved the Kenyan government, which has a 29.8 per cent stake in the Nairobi-listed airline, also converting $243 million of loans it had made to the company into shares.
This changed the shareholding structure at the airline, with the government's stake rising to 48.9 per cent.
KQ Lenders Company emerged as the second-largest shareholder with a stake of 38.1 per cent.
The restructuring diluted the shareholding of KLM, KQ’s longtime partner, to 7.8 per cent from 26.7 per cent while retail shareholders ended with a 1.78 per cent stake from 24 per cent.
Although the airline's management is in agreement with other stakeholders including the vocal pilots lobby, the Kenya Airline Pilots Association (KALPA) on plans to shore-up revenue, the staff rationalisation plan is likely to brew some storm.
In an open letter to the president, the lobby which conceptualized most of the restructuring measures submitted to IMF insists that the airline must work on a talent retention programme if it seeks to compete with peers in the market.
According to them, diversification of KQ's business model like the establishment of secondary hubs, capitalising on low hanging routes and rapid of existing profitable networks requires a high degree of experts.
Yet, 120 pilots have in the last four years sought greener pastures in competing airlines such as Ethiopian Airlines, Emirates, RwandAir, Etihad, All Nippon Airways, American Eagle and Oman Air.
"Efforts to replace these pilots has not been sufficient and this is evidenced by the 49,000 leave days currently owed to 430 pilots in employment at Kenya Airways,'' the lobby said in the letter.
It, however in support of the airline's financial recovery plan, adding more suggestions to the ones already submitted to IMF.
They include replacing some of the Embraer 190 in the fleet with the larger medium-range aircrafts such as the Boeing B737-800 and the Airbus A320 family to meet the underserved needs of the market.
They are also routing for a multi-purpose passenger aircraft with optimized cargo-carrying capacity, saying consideration should be given to the Boeing 777-300ER which is an aircraft that can uplift up to 40 Tonnes of cargo, with full passengers and their luggage.