State embarks on last phase of KQ restructuring

The restructuring of Kenya Airways is set to get into high gear in the coming months as the government embarks on its push to have the carrier become self-sustaining and wean it off exchequer support.

The Ministry of Transport has in recent weeks held a series of meetings with senior officials from KQ as it seeks to conclude the restructuring of the carrier and bring on board a strategic investor.

The latest of these meetings was held yesterday between Cabinet Secretary Kipchumba Murkomen and the management of the airline alongside senior officials from the pilots’ union – the Kenya Airline Pilots Association (Kalpa). 

The government had expected to have completed the restructuring of KQ by the end of last year when it was projected to be running on its own without Treasury support. The State had given a deadline of December 2023 to have turned around the carrier after which it would not need operational support from Treasury.

An official from KQ said this remains a key objective for the Transport Ministry and the CS had separately met with the carrier’s board, the management and representatives from unions as he sought to see how best to let KQ fly on its own. 

“As you are aware Kenya Airways is in the process of restructuring its business to attract a strategic investor. The government supports this initiative given the company’s role in the country’s economy. To this end, the Cabinet Secretary invites you for a consultative meeting on Wednesday, March 20… to get your views on the process and other connected issues,” reads a March 18 letter from the Ministry to KQ Chief Executive Allan Kilavuka and Kalpa Secretary General Muriithi Nyagah. 

The discussions are taking place ahead of the bringing on board a strategic investor in June this year.

KQ has hired a consultant to help it secure an investor. The carrier posted a Sh21.6 billion net loss for the half year to June 2023.

This is more than double the Sh9.89 billion loss KQ posted over a similar half in 2022. It attributed the loss to the weak shilling that resulted in foreign exchange losses as well as increasing the cost of repaying foreign currency-denominated loans.

Treasury in January said it had directed KQ to onboard a consultant to support the onboarding of an equity investor who can inject capital into the business. It expects KQ to close the deal by the end of June this year. 

The Kenya Kwanza administration  has in the past said that KQ has at different times proven that it can sustainably run without government support. “Aviation is a strategic industry for the economy. It is vital for the tourism industry, exports of fresh produce and maintenance of position as a regional hub,” said the Treasury in budget documents.

“The Kenya Airways had demonstrated that Kenya could become a global aviation hub. To support the aviation industry, the Government will develop a turnaround strategy for Kenya Airways. A critical plank of this strategy will be a financing plan that does not depend on operational support from the exchequer beyond December 2023.”

The loss was despite higher revenues, which grew 56 per cent to Sh75 billion over the first half on account of increased passengers, which grew 43 per cent to 2.3 million.

Higher revenues over the half, KQ said, saw it post an operating profit of Sh998 million – the first in six years – from a loss of Sh5 billion last year. 

The airline said its improved performance was negated by a Sh17 billion impact on foreign exchange losses on monetary items, loans and leases. Losses due to currency volatility may have worsened in the second half of last year, with the shilling having sunk to a low of Sh160 to the US dollar before it started posting gains this year. 

Being profitable at the operational level, the carrier said, was a show that strategies put in place to turn KQ around are working. It had earlier said it expected to post a profit by the end of this year.