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Forensic audit to unearth causes of Kenya Airways’ record losses

By Moses Michira | February 10th 2016

NAIROBI: Kenya Airways has commissioned a forensic audit that could unearth how the airline sank into record losses.

The firm announced yesterday the appointment of audit firm Deloitte to undertake the probe, less than a month after the airline fired its Finance Director Alex Mbugua. “The objective of this exercise is to identify areas of weakness and give recommendations that will complement the ongoing turnaround strategy,” KQ said in a statement.

Terms of the audit were not immediately available but the probe could extend many years back, possibly netting past managers.

The airline said it expects the findings of the audit would improve the service delivery, while checking on processes.

Bad investment decisions by management including a fuel hedging strategy that went awfully wrong and an unsustainable expansion are thought to have caused the firm’s record net loss of over Sh25 billion, according to preliminary findings.

Now, the firm is seeking to raise additional capital to support the ailing business whose aircraft are lying underutilised while repayment for the jets has placed a strain on the finances.

Among the most likely financing avenues the firm is exploring is through a rights issue, where existing shareholders will be asked to inject capital in a rate commensurate with the size of their shares.

But investors in the airline are jittery about putting in more money, especially after the record losses, before the factors ailing the business are identified. World Bank-owned International Finance Corporation – one of the major shareholders, has expressed its dissatisfaction with the way the company was run.

Long-term capital

Top State officials, speaking on behalf of the government of Kenya, the single largest shareholder, have also called for the overhaul of management as a condition before a bailout is extended.

This anxiety among major shareholders has informed the pending forensic audit, before the airline embarks on executing a turnaround plan.

KQ also announced that it was nearing the selection of the transaction adviser to help in raising funds for the revival, with some estimates placing the required capital at Sh60 billion.

“The transaction adviser is expected to assist the airline achieve its strategic objectives in relation to long-term capital financing,” said the firm.

Last month, National Treasury Cabinet Secretary Henry Rotich told The Standard that the Government and the airline had agreed on the plan, which is now being implemented to turn the airline’s fortunes around.

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