KQ considers Treasury signal for new recovery plan

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KQ considers Treasury signal for new recovery plan


A Kenya Airways plane at JKIA. PHOTO FILE | NMG

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Summary

  • The plan submitted by British consulting firm Steer Group last month suggests the most viable options for overhauling the airline in the face of worsening financial losses.
  • KQ chairman Michael Joseph confirmed on Wednesday that the report was complete and was awaiting Treasury approval.
  • Developing a viable recovery strategy for KQ was one of the terms of the 255 billion shillings loan to the government from the International Monetary Fund (IMF) in March.

A new turnaround strategy proposed for Kenya Airways awaits Treasury approval even as the airline hopes to improve its fortunes in the medium term.

The plan submitted by British consulting firm Steer Group last month suggests the most viable options for overhauling the airline in the face of deepening financial losses and falling passenger numbers.

KQ chairman Michael Joseph confirmed on Wednesday that the report was complete and was awaiting Treasury approval. He did not discuss the contents of the report.

Developing a viable recovery strategy for KQ was one of the terms of the 255 billion shillings loan to the government from the International Monetary Fund (IMF) in March.

In the loan agreement, Kenya committed to audit and reform the operations of nine key public enterprises (SOEs) to ensure their sustainability.

These are Kenya Airways, Kenya Airports Authority, Kenya Railways Corporation, Kenya Power and Lighting Company, Kenya Electricity Generating Company, Kenya Ports Authority and three of the largest universities.

For Kenya Airways, the government has pledged to hire an independent consultant to audit the airline and find the cheapest way to restructure it.

As the airline awaits the Treasury’s word on recommended reforms, it continues to experience a period of turbulence amid suppressed activities.

The airline, which is considering another treasury cash bailout, recorded a net loss of 11.49 billion shillings in the six-month period ended June, down 19.8 percent from the loss of 14, 33 billion shillings suffered during the previous similar period. This brought his accumulated losses over the years to over 127 billion shillings.

KQ’s liabilities exceeded assets by Sh 73.85 billion at the end of June compared to Sh 64.16 billion in June of last year, keeping it technically insolvent.

Accumulated losses and declining revenues have caused the company to violate conditions set by global financiers, highlighting the airline’s over-indebtedness.

“The company’s financial situation is precarious. We are in a negative equity position, which means we are insolvent as an organization, obviously made worse by the pandemic, ”KQ chief executive Allan Kilavuka said when the airline released its half-year results. last month.

“The business definitely needs financial support and it’s no secret. We still need financial support from our directors or elsewhere.

KQ had previously borrowed from international financiers and almost all of the country’s major banks, including KCB and Equity. The airline, however, defaulted on loans from local banks, which now only maintain a revolving credit facility agreed to earlier as part of their restructuring of their combined unsecured loans worth $ 17 billion. shillings in 2017.

International lenders like JP Morgan and Citibank guaranteed their loans using the plane the company bought.

KQ’s quest for a new bailout comes at a time when many public entities, including Kenya Power and Kenya Railways, continue to depend on the treasury for their survival, without doing much to correct their business models.

Kenya has around 260 state-owned companies and the Treasury estimates that taxpayers could spend around 382 billion shillings to keep the operations of 18 of them afloat over the next five years.

The IMF pushed Kenya to reduce the ineffectiveness of these institutions.

, including removal of duplicate roles and downsizing.

KQ was privatized 24 years ago, but sank into debt and losses in 2014 after an expansion failed, costly aircraft purchases and a drop in the number of travelers after a major terrorist attack.

The Kenya Aviation Management Bill, 2020, aims to nationalize KQ and make it one of the subsidiaries of a holding company known as the Kenya Aviation Investment Corporation.

The others will be the Kenya Airports Authority, which will operate all of the country’s airports, including Jomo Kenyatta International Airport (JKIA) in Nairobi, under an investment arm dubbed the Aviation Investment Corporation.

The bill went to Parliament for first reading on June 30, 2020, but has since encountered headwinds over allegations of insufficient public participation.


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