Aviation: Kenya national carrier Seeks Sh7 billion emergency state bailout

kenya, cargo, aviation

The Kenya national carrier, Kenya Airways (KQ) has asked the State Treasury for a Sh7 billion – about $66m – emergency bailout after its aircraft were grounded due to the restrictions on international passenger flights sparked by the coronavirus pandemic that has killed over 280,000 people globally.

The application is being reviewed by the Treasury, which has remained non-committal on whether it will offer the national carrier the money it needs for the maintenance of the grounded planes, payment of staff salaries and settlement of utility bills like security, water, electricity and parking fees.

Large aircraft pay $25 (Sh2,650) daily to park at airports like JKIA and $585 (Sh62,010) and $702 (Sh74,412) to land during the day and night respectively.

Besides the bailout, the airline is also seeking other incentives like tax breaks and waivers of navigation and landing fees. Without State aid, the airline risks running out of money in the near future against the background of banks’ uneasiness in lending to Africa carriers which are facing a plethora of challenges.

The International Air Transport Association has warned that the aviation industry may take years to recover from the Covid-19 pandemic and that African airlines could lose upto $6 billion (Sh636 billion) in passenger revenue this year alone, further compounding their woes.

“We are looking into KQ’s Sh7 billion request during this difficult time,” Treasury Secretary Ukur Yatani told the Business Daily.

“The request will be reviewed against the background that the airline recently received Sh5 billion from the government.”

The Treasury has indicated that it has not included a provision for Kenya Airways in the budget estimates for the year starting July, which are before Parliament for approval.

Kenya Airways received a Sh5 billion commercial loan from the Treasury in late February to fund its fleet engines overhaul and maintenance as well as to finance day-to-day operations for the loss-making airline.

This underlines the airline’s overreliance on Treasury-backed loans and financing.

In the latest case, Mr Yatani did not disclose whether Kenya Airways is seeking a grant, a loan or a combination of both.

The State suspended all cross-border passenger flights on March 22, stopping KQ’s flights to destinations outside Kenya.

The order effectively cut off Kenya Airways’ flow of new revenues at a time when it had no cash reserves.

On April 6, the government also barred movement into and out of four counties including Nairobi, Mombasa, Kwale and Kilifi, forcing Kenya Airways to ground local flights as well and hinge its survival solely on cargo business, which is also facing stiff competition from Ethiopian Airlines.

Kenya Airways Chief Executive Officer Allan Kilavuka said revenue from the carrier’s cargo business are not adequate for the airline to meet its obligations.

Cargo and mail contributed only 7.3 percent of the airline’s sales in 2018, bringing in Sh8.4 billion out of Sh114 billion that the listed firm recorded as revenue.

“We can survive if we get some revenue from cargo, but only just survive. For us to meet our full obligations, we need government support urgently,” said Mr Kilavuka.

“Aircraft engines have to be maintained often and it is important that we get funds for this.”

Global carriers like British Airways and Ethiopian Airlines have committed more flights to shipping flowers, fresh fruit and vegetables via Jomo Kenyatta International Airport (JKIA), further squeezing Kenya Airways’ share of cargo business.

The Ministry of Transport has acknowledged that lack of cargo flights has hurt the airline’s cargo business.

“Kenya Airways has only two cargo freighters, one of which is currently undergoing heavy maintenance.

These freighters, however, fly short distances and cannot, therefore, fly to Europe,” said Transport Secretary James Macharia.

To get around this handicap, Kenya Airways has converted some of the passenger planes grounded by the coronavirus for shipment of light cargo like medicines.

In 2017, the government converted Sh16.8 billion worth of loans it had provided to the airline into shares as part of the airline’s debt restructuring.

The government, which owns 48.9 percent of KQ shares, also holds another Sh7.7 billion worth of convertible debt.

The carrier’s share price at the Nairobi Securities Exchange has dropped to Sh1.27, shaving off nearly half its value in the past month and valuing the airline at Sh7.2 billion.

KQ reported a net loss of Sh8.5 billion in the half year ended June 2019, more than double the net loss of Sh4 billion the year before as costs rose faster than revenue.

KQ’s problems have been linked to a mix of increased competition, corruption, mismanagement and a previous debt binge that continues to weigh heavily on its balance sheet.

In the wake of the global coronavirus pandemic, KQ’s top executives as well as some employees took a pay cut of up to 75 per cent on their gross salary following the grounding of international flights.

Source: BusinessDailyAfrica.com

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