Kenya Airways seeking Ksh.4 billion Govt loan to stay afloat

National carrier Kenya Airways (KQ) says it is seeking an additional Ksh.4 billion in government support to stay afloat through the pandemic.

The new revelation by the airline on Wednesday clarifies reports indicating the carrier had sought out a fresh Ksh.7 billion bail out to keep flying amidst Covid-19 led disruptions to its operations.

According to KQ Group Chairman Michael Joseph, the carrier applied for a two tranche Ksh.9 billion loan in January and has since received the disbursement of a paltry Ksh.5 billion, booked on February 18, to revamp engineering operations and general operations.

Joseph expects the second part of the credit facility, expected from July 1, to meet additional fleet costs and staff benefits as the carrier awaits a potential near-term return to full scale operations.

“We’ve been grounded for almost three months now. During that time, we’ve maintained all of our 38 aircrafts. We have to pay leases and meet insurance costs which do not go away whether you fly or not,” he said.

“We have asked formally for support from government and are still waiting to hear from them.”

KQ operations have severely been dented by the Covid-19 pandemic with most of its operations being grounded since March 25 in line with international virus containment measures which have seen most other airlines shut down shop.

The airline says 90 percent of its operations have been severed with the only lifeline coming by the way of its cargo business which has seen it re-purpose three Boeing 787 passenger aircrafts to lift cargo.

While the pandemic represents an ongoing concern for Kenya Airways, new Chief Executive Officer Allan Kilavuka says the unexpected break allows time for the carrier to re-invent itself.

“Nobody knows how this pandemic will look like in the end. In a way, it gives us time to reflect and retrospect as we ask ourselves questions on how to better manage the carrier,” he said.

While prepping up for a potential June 8 return, the airline first seeks to review its network in line with market recovery trends in the post-virus age.

“We are going to respond to the market in the new context which we are yet to see. We need to maximize in routes where we can build traffic quickly enough. Second is to keep routes with a positive contribution to our network. We will not be investing in new routes and will rethink investments in recent routes,” added Kilavuka.

Kenya Airways is further pinning its sustainability on recently passed sector reforms with the Aviation Holding Company which seeks to merge the airline and airport operator Kenya Airports Authority (KAA) headed to the National Assembly in coming weeks.

Even so, opinion on bailing out the airline remains split in the middle with some observing the carrier as an important state asset by mere sentimental value.

Chairman Michael Joseph however argues the airline holds a much greater role for the country even as he questions past bail outs to the company.

“Should Treasury continue to bail out Kenya Airways? In the current Covid-19 context, yes, in the previous context, no. The National Treasury owns nearly 50 percent of the company. It is normal in terms of stress to go back to your shareholders and ask for a loan or increased investments,” he said.

“Kenya Airways is not just an airline company but a strategic asset to government. This would be an investment in the future of Kenya. Other governments including Rwanda and the UAE have made notable investments towards their respective airline industries. It’s not always a bail out.”

“The problem we’ve had is that government’s assistance to Kenya Airways has always been in bits and pieces. We’ve never really had a grand leap of courage to invest in a big way and put the company on strong footing. The proposed Aviation Holding Company is one such investment,” Joseph concludes.

Kenya Airways hopes to tread high waters and survive through the worst of the pandemic with Allan Kilavuka estimating passenger demand to dip by over 3.5 million travellers in 2020 even if flights resume in June.

KQ further faces the curse of higher operating costs even as it hit a new Ksh.128.3 billion historical revenues record in 2019.

On Tuesday, the airline posted an expanded Ksh.13 billion net loss as costs rose to Ksh.141.3 billion from Ksh.12.8 billion in 2018 from increased operations, higher asset impairment and changes to accounting estimates.