KQ eyeing narrow loss via low fuel costs and savings

Kenya Airways CEO Mbuvi Ngunze (right) said he expected transaction adviser PJT Partners to outline a plan for new debt and equity funds by the end of April.

NAIROBI: Kenya Airways expects an improvement in operating profit and narrower losses for the year ending in March. This is because of savings made by reducing the size of its fleet and lower fuel costs, its chief executive officer said.

Mr Mbuvi Ngunze also said the airline expects to receive the second $100 million (Sh10 billion) tranche of its $200 million (Sh20 billion) bridging loan within a month, part of a broader plan to keep the carrier flying after three and a half years of financial losses.

The airline, one of Africa's biggest carriers, is also considering cutting the number of staff after a review of staffing needs, he said without giving details.

Kenya Airways, which is 26.7 per cent owned by Air France KLM , reported a pretax loss of Sh29.7 billion for its financial year to end of March 2015, the third straight year of losses. But losses narrowed in the six months to September.

"The loss will reduce but we will of course have some big hits," the CEO said in an interview, citing the weakening of the Kenyan shilling by more than 10 per cent against the dollar last year.

Operating profit "will see an improvement this year," he said. "Fuel is a big driver clearly but we have also been working a lot on cost reduction, we have cut back capacity."

Last year, the airline drew down $100 million (Sh10 billion) of a bridging loan from Cairo-based Afreximbank. Ngunze said the airline was in final discussions to release the second tranche. "In the next month we should be able to draw down," he said.

Ngunze said he expected transaction adviser PJT Partners to outline a plan for new debt and equity funds by the end of April, with cash raising to take six to nine months after that.

Kenya Airways previously said it would need about Sh70 billion but Ngunze said that number could shift after the transaction adviser's review. "That number might change to higher or lower," he said.

Shareholders, including the Kenyan government with a 29.8 per cent stake, broadly supported the plan so far, he said.

It has already sold two Boeing 777-200s, and sub-leased three Boeing 777-300s and two Boeing 787 planes. "We have taken some painful decisions," he said.

But Ngunze said the airline still offered almost the same number of available seats per km (ASK) with fewer planes. "We are sweating our assets more," he said, adding the fleet reduction had saved $7 million (Sh709 million) a month.

Kenya Airways offered capacity of 15.4 billion available seats per km at the end of March 2015, and Ngunze said it had only fallen by 2 to 3 percent since despite a smaller fleet.

He said flights to West Africa were seeing higher demand as Ebola cases had come to an end in the region. He also said he was confident of a rise in tourist numbers to Kenya, which has suffered a number of militant attacks in recent years.

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