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KQ hits turbulence yet again with worst ever Sh36.2b loss

BUSINESS
By Macharia Kamau | March 24th 2021
Kenya Airways aircraft flight from Kigali,Rwanda lands at JKIA during the launch the resumption of the International flights at Jomo Kenyatta International Airport (JKIA) Nairobi, August 1, 2020 [Elvis Ogina,Standard]

The revival of Kenya Airways (KQ) now hinges on Parliament passing a new Bill that will convert the national carrier into a parastatal after it reported a jaw-dropping Sh36.2 billion loss for the year ending December 2020.

The loss is the largest ever reported by a listed firm in the country and is in comparison to a loss of Sh12.9 billion the airline reported in 2019.

KQ yesterday attributed the dismal performance to the harsh impact of the coronavirus pandemic on the global aviation industry.

The government has perennially bailed out the airline and is currently in the process of advancing it a Sh28 billion rescue package to keep it afloat pending its nationalisation.

The process has already started and is awaiting the National Aviation Management Bill, 2020 to go through the National Assembly.

Despite numerous turnaround measures, the airline has reported losses since 2013, with 2016 hitherto being the biggest when it reported a loss of Sh26.2 billion.

It appeared to have turned the corner in 2018 when it narrowed its losses to Sh7.6 billion, but widened in 2019, with the Covid-19 pandemic worsening matters last year.

The airline grounded nearly all its operations between April and August last year following the measures put in place to contain Covid-19, including the closure of the local airspace.

Over the four months, KQ only operated cargo flights as well as few passenger flights, mostly evacuating Kenyans stuck in other countries that had been under lockdown as governments moved to contain the spread of the virus.

This saw KQ’s revenues drop by 59 per cent to Sh52.81 billion last year from Sh128.32 billion in 2019.

“The year 2020 was extremely challenging for the airline due to the effects of the Covid-19 pandemic, which severely impacted the aviation industry,” chairman Michael Joseph told an investor briefing in Nairobi, noting that the industry reported passenger numbers last seen in 1999, “wiping out 21 years of airline passenger traffic growth.”

“For the first time in the company’s history, KQ shut down its scheduled network operations from April to July 2020 following the Kenya government’s directive to suspend all scheduled passenger services.”

Despite the resumption of local flights in July and international flights in August, business is yet to bounce back to pre-Covid-19 levels, with the airline indicating that most of its 1.8 million passengers last year were uplifted in the first quarter, just before the pandemic struck.

“Approximately 70 per cent of total passengers carried in 2020 were flown during the first three months of the year, demonstrating the drop in demand as the global crisis deepened during the year,” said Joseph.

The airline expects the government to advance it a shareholder loan of Sh28 in the course of this financial year.

During the investor briefing, KQ disclosed that it had been advanced Sh6 billion in the period to December 31, which had been allocated in the current budget.

The allocation has since been increased to Sh28 billion in the first Supplementary Budget, currently under review in Parliament.

Chief executive Allan Kivaluka said airlines globally are relying on government support to stay afloat.

“It has been a tough year where we have faced unprecedented challenges. The situation continues to be difficult even as we gradually resume our operations, mainly due to the depressed demand for air travel, with recovery to 2019 levels expected to take between three and four years,” he said.

This is even as the carrier waits for its ownership to revert to government. The re-nationalisation process is already in progress, with the National Aviation Management Bill undergoing deliberations in Parliament.

The passage of the National Aviation Management Bill, 2020 is expected to see the government take over the airline, which will be owned by a holding company that will also own Kenya Airports Authority.

The Treasury has already indicated that it is in talks with the other shareholders on modalities of getting them out of the ownership structure. Treasury has a 48.9 per cent stake in the carrier, with the other major owners being KQ lenders (38.1 per cent) and KLM (7.8 per cent).

“When we started this (re-nationalisation) process, it was before Covid-19 and things were different. What we had seen is that changing the structure gives us an edge to compete on an equal footing with Middle Eastern carriers and even regional airlines such as Ethiopian Airlines,” said Joseph.

The government has in the past termed the carrier a strategic asset that should not be singularly judged on direct returns like payment of dividends as it plays a key role in the economy.

Other than enhancing the country as a regional hub, the airline also supports key sectors such as tourism and agriculture that, in turn, earn the country billions of shillings in foreign exchange while creating numerous jobs.

Following the grounding of passenger flights, the airline tried to increase its cargo capacity, including converting some aircraft into freighters.

This saw revenue from cargo grow to Sh311 million, the only revenue stream that reported growth during the year.

The airline has increasingly invested in cargo, including a pharmaceutical handling facility at Jomo Kenyatta International Airport, which Kilavuka said would be used to support importation of Covid-19 vaccines as well as handling other pharmaceuticals.

 

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