Kenya’s Standard Investment Bank has said Kenya Airways (KQ) requires up to about US $ 960 million or Ksh100 billion to stay afloat, Daily Monitor reported Wednesday that the money is required in the form of fresh capital injection to reduce the carrier’s debt burden.
Additionally, KQ may also need to significantly scale down its operations and cut on operating costs to return to profitability, according to Standard Investment Bank estimates. Last week, KQ reported a loss of Kenya Shillings 25.7 billion after taxes. “Kenya Airways needs new funds in the region of Shs2.28b (Ksh80b) to (Shs3.4 trillion) Ksh100b,” said Eric Musau, an analyst at SIB.
Treasury secretary Henry Rotich, whose ministry has a seat on the KQ board, said at the weekend a plan was underway to inject up to Shs1.86 trillion (Ksh60b) into the company.
The airline also announced last week that it had signed a Shs620b (Kh20b) loan from the African Export Import (Afrexim) Bank.The anticipated new round of equity financing is expected to see the government’s ownership in KQ go above 50 per cent from the current 29.8 per cent.
This, analysts said, is based on the expectation that retail investors would avoid pumping new money into the airline having booked major losses that have culminated into their wealth being wiped out in the year ended March.“The key is to reduce the debt burden as much as possible. The company also needs to take some tough decisions and become a smaller airline,” said Mr Musau.
He said a potential rights issue could see the government raise its ownership above the 50 per cent mark, diluting the combined ownership of other investors to less than 10 per cent.
Mr Musau said Dutch airline KLM — currently the second largest shareholder in KQ with a 26.73 per cent stake — could also find it difficult to provide its share of new funding to the Nairobi Securities Exchange-listed carrier.
Should the treasury decide to bail out the airline, it could be forced to make major revisions of other expenditure items or borrow more since rescuing the airline was not provided for in the current budget.