Broke, but not broken, KQ in deep cash crisis

After dominating the region for decades, with many seeing it as a success story, Kenya Airways (KQ) is in deep financial crisis, with reports from Nairobi suggesting that the airline may be broke.

Kenya Airways owns 41.23 percent shares in Precision Air, the only major airline in Tanzania. It has also been undergoing financial turbulence in the past three years that saw regional routes being suspended in 2013. The airline is cross-listed on the Dar es Salaam Stock Exchange.

Kenya’s premier newspaper, the Daily Nation, reported yesterday that the cash-strapped airline has turned to debt to pay its workforce “as the airline flies under the weight of liquidity flow problems that have seen its debt burden hit $800 million (Sh1.47 trillion)”.

Quoting the airline’s chief executive officer, Mr Mbuvi Ngunze, the Daily Nation reported that KQ was experiencing tough financial times that had left it with no option but to take on debt to sustain its nearly 4,000 workforce. Mr Ngunze took over from Mr Titus Naikuni, who retired voluntarily last year after 11 years at the helm.

Deep financial turbulence

Last year, KQ posted after-tax losses amounting to $112 million (Sh200 billion). The airline, which markets itself as The Pride of Africa, has since been in a financial crisis that threatens its ambitious fleet expansion.

According to reports from Nairobi, KQ blamed the performance on dampened passenger numbers due to the suspension of flights to Ebola-hit Sierra Leone and Liberia and insecurity at the Kenyan coast.

The Citizen could not independently verify whether the airline’s profits are hinged largely on one key West African route. It also flies to various regional and international routes including Europe, Asia and Middle East.

According to the Daily Nation, KQ’s total current liabilities stood at $800 million as at September 2014. Short term loans account for $456 million and outstanding debts to suppliers work out to $178 million. The airline also has pre-payments or cash due in advance of carriage standing at $122 million.

 “So how am I paying my staff? I am paying them through debt,” chief executive officer Naikuni said in Nairobi mid-this week when he appeared on Citizen Television’s Business Centre show.

According to reports from Nairobi, KQ blames its situation on dampened passenger numbers due to the suspension of flights to ebola-hit Sierra Leone and Liberia and insecurity at the Kenyan coast.  

Kenya Airways also has long-term loans, currently standing at Sh1.05 billion. In a region where nearly all other national airlines collapsed or are on their deathbed but for Ethiopian Airlines, KQ has been seen as a prime example of how a national carrier can be led through a successful path.

Air Tanzania, which started off the same year as KQ was incorporated shortly after the collapse of the East African Airways in 1977, died a decade ago and has since been struggling to return to its days of glory.  Uganda has no surviving or functioning national airline. The same applies to Burundi. Rwanda is the only other country in the region to revive and build a national airline in the past 15 years.
 
Stiff competition, bleak future

With growing competition, especially from gulf-based airlines like Emirates, Qatar, Fly Dubai and Oman Air--which have increased their frequencies to Jomo Kenyatta International Airport--Kenya Airways faces a bleak future.

Despite being the second airline in this region to acquire four Dreamliner 787s after Ethiopian, KQ faces tough competitions on long routes such as Europe, Middle East and Far East.

Last week, the Daily Nation reported that Middle East-based airlines were pushing KQ to a turbulent future. The report followed the entry of a new competitor, Fly Dubai, which launched direct flights to Nairobi last week. Fly Dubai has been consolidating its position in Eastern and Northern Africa in the past year.

Dubai’s Emirates also brought the battle to the doorstep of the troubled Kenya Airways when it announced plans to connect more people with Kenya’s capital, Nairobi, by switching from the current Airbus A330-200 aircraft used in one of the two daily flights to a larger Boeing 777-300 ER starting May 1. Abu Dhabi’s Etihad Airways and Qatar Airways have also been increasing their touch points in Africa.

In the past decade, KQ has dominated the eastern Africa region, becoming the only choice for passengers connecting to Europe, the Middle East and China. But, with the presence of major airlines now--some of them believed to be subsidised--KQ’s days of glory appear to be numbered.

The airline has ordered nine Boeing 787 Dreamliners in its ambitious plan to upgrade its fleet, especially the long-haul ones. It has already received four planes. 

The Dreamliner, which costs $125 million, can ferry 250 passengers and reduces fuel consumption by 20 per cent. But an aviation analyst, who declined to be named because he has interests in KQ, said the biggest concern right now is that the airline is targeting international routes, where competition is stiff, while a big chunk of its profits comes from regional routes.

“There’s money in regional routes--especially in Eastern, Southern and Western Africa, where there are no reliable and secure national airlines,” he told The Citizen yesterday. KQ should focus on these routes instead of investing heavily in international routes.”

Source: The Citizen, reported from Nairobi, Kenya
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