Kenya Airway experiences economic turbulence

by Thabile Manala 0

Kenya Airways (KQ) is 70 billion Kenyan shillings in debt this year.

Mbuvi Ngunze, chief executive of the airline told CNBC Africa that his main priority when he took over was to restructure the airline’s debt especially for the short term which he described as “slightly sticky”.

“We are in the final stages of looking for a bridging loan to manage the short term debt because we could anticipate the tight liquidity into the new part of the year and also looking for some working capital,” he said.

According to Ngunze, they have invested significantly in the last two to three years which has added to their capacity for the long term plan, however in that vision the primary market has been quite unstable.

The Kenyan tourist numbers have been dwindling which has been a major difficulty for KQ given their exposure to that market.

There is a shortfall in the company’s cabin factor. “In the aviation industry, if you have three to four percentage points lower in terms of cabin factor that’s the difference between profit and loss,” he said.

Another blow to the airline was the closure of the West African routes because of Ebola. With the reopening of routes like Monrovia and Liberia, both via Accra, the airline made 4 million dollars a month in revenue.

Ngunze explained that the airline benefitted from low fuel prices which accounted for almost 40 per cent of the operation.

“A lot of us, airline operators, have hedge positions which look out for one year and when fuel prices went down in October, we have had to unwind some of those positions.”

While the Nairobi listed company may be in debt, Ngunze defended it by adding that over 10 years between 2002 and 2011, the airline grew four times in turnover and expanded rapidly. It only made losses in 2009, when there were some hedging losses.

In its vision of the next 10 years, the board decided on Project Mawingu which aims to double the existing fleet to just over 100 by 2021.

“Mawingu was a dynamic plan which needed to be segmented into the first five years, so the financing was achieved.”

Kenya’s national carrier sets to add value to the capacity although the market is currently unstable. Ngunze said shareholders will have to be patient for the share price to come back up.