Kenya Airways is experiencing more turbulence. The airline is facing cash-flow problems which may require a bailout similar to that of Mumias Sugar.
Sources familiar with the matter say Kenya’s national carrier has suffered a cash squeeze after splashing billions on fleet and route expansions. Four Boeing 777 planes are grounded, but sources say it could be a strategic move to cut losses.
The airline lacks cash to run operations because of high costs of its expansion plan and could require a capital injection of up to Ksh20 billion or debt restructuring to stay afloat. The four 777s were to be sold, according to an insider, and the other two are grounded because there is too much capacity. In the industry, it is cheaper to ground an aircraft than operate at half capacity.
“The 777-200s are grounded because they are on sale,” said the person, who requested not to be named. “They are four. Then the 777-300, which should be two or three, are grounded due to what we call winter schedule being not too busy; less traffic or over capacity. But they should be operating during summer.”
The airline posted a Ksh10.5 billion ($116.5 million) loss in the six months through September, hurt by rising costs, the impact of domestic insecurity and route cancellations due to the Ebola outbreak in West Africa. The airline had profit of Ksh384 million in the same period the previous year.
Kenya Airway, Africa’s third-largest carrier, had projected then that its full-year loss will be less than in the first half, boosted by economic growth in its home country. “There will be a resurgence from an economic point of view and our exposure to Kenya is significant, so it means that if Kenya’s fortunes turn, ours will also turn,” Chief Executive Officer Mbuvi Ngunze said in November, just after taking over from long-serving CEO Titus Naikuni.
Both investors and analysts remain cautious about Kenya Airways’ return to profitability due to increased debt obligations arising from finance its fleet expansion programme. The airline increased its fleet to 50 in September from 45 a year earlier.
The company plans to operate 107 aircraft by 2022. The airline’s management has been silently implementing a staff rationalisation exercise that has seen a good number of employees laid off. Some are said to have left due to the company’s financial uncertainty.
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