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Kenya Airways to seek more loan deferrals as it awaits nationalisation

By David Whitehouse
Posted on Friday, 24 September 2021 10:47, updated on Tuesday, 28 September 2021 17:53

Kenya Airways CEO Allan Kilavuka. Photo supplied.

Kenya Airways will need to ask its lenders for more deferrals of capital repayments as it waits for parliament to approve its planned nationalisation, CEO Allan Kilavuka tells The Africa Report ahead of the AFRICA CEO FORUM Digital Edition where he will be a speaker.

The airline has been paying interest only on its loans. “So far lenders have been understanding,” Kilavuka says in Nairobi, adding that he expects they will continue to give support.

The government owns 48.9% of the airline, with a consortium of lenders holding 38% and Air France-KLM 7.8%. The bill to nationalise the airline has passed parliament on its first and second readings, but still needs to be read a third time. Kilavuka says that the bill has not been given priority, and that he doesn’t know when the third reading will take place. “Nationalisation is not a panacea, or an end in itself,” he says. “It’s only part of the reform process.”

The proposed nationalisation would bring together Kenya Airways and the Kenya Airports Authority (KAA) under a single holding company, the  Kenya Aviation Corporation. Kenya Airways and KAA have a “symbiotic” relationship with the airline providing 60% of KAA’s revenue, Kilavuka says. Bringing them under the same umbrella would mirror what has been done in Mauritius, he says. If the airline wants to increase capacity in the future, that needs to be “synchronised” with KAA’s goals.

In the meantime, the company’s focus is in conserving cash and keeping costs down, he says. There has been an increase in activity, with the airline now running at 65% of capacity versus 50% at the start of the year. The removal of Kenya’s from the UK’s “red list” and liberalisation of travel in the EU and the US have helped, Kilavuka says.

  • The fact that 2022 is an election year in Kenya will slow the recovery as politicians stay home to campaign rather than travelling, while international investors may be inclined to wait and see the results, he says.
  • Kilavuka expects that a return to 2019 levels of activity for the airline will take until mid 2023.
  • The airline’s problems long predate Covid-19, and it has been losing money since 2012. Kilavuka says his “aspiration” is for breakeven to be reached by the end of 2024, which would mean more than a decade of losses.
  • The airline will likely be able to avoid further job losses, assuming that there is no return to generalised Covid-19 lockdowns, he adds. “We will need more people in the future, not less.”

Cargo bright spot

The airline is currently flying to 42 destinations versus 53 before the pandemic. Routes that the airline is considering reopening are Rome and Milan in Italy, Mogadishu in Somalia and Hargeisa in Somaliland. The pandemic had made the company “extremely flexible” in deploying capacity, Kilavuka says. “We will change tack quickly if needed.”

Kilavuka has moved to reduce the size of the fleet by agreeing this month to sublease two Embraer E190 aircraft to Congo Airways. Kenya Airways also has a cargo codeshare accord with the Democratic Republic of Congo carrier.

  • Kilavuka hopes that the partnership can be extended, and hopes to find new partners to help rationalise fleet sizes. “Partnerships are key and critical to our strategy.”
  • Cargo revenue increased 60% in the first six months of this year, even as passenger revenue dropped 17%.
  • Kilavuka sees diversification away from passenger flights as key to the future. He has converted two Dreamliners from passenger to cargo use, and wants 20% of the airline’s business to come from cargo by 2025, versus 10% now.
  • The airline also aims to develop in drones and inspection of infrastructure, he adds.

Bottom line

Kenya Airways’ owners will need patience and deep pockets with no prospect of breakeven until the end of 2024.

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