News

The slogan of Kenya Airways (KQ) is “The Pride of Africa”. Therefore KQ is an important entity for this country. In the past, KQ has been an envy of the continent. It carries our national flag and identity globally. With that in mind, the national carrier must be saved from Ksh25.7 billion loss which signals imminent collapse of the airline.
In order to save the “Pride of Africa”, the challenges which contributed to the huge loss must be known. Currently, some challenges have been pointed out. The slump in tourism did affect many sectors of the economy and Kenya Airways was not immune. It is also true that the Ebola outbreak in West Africa affected KQ business.


Senate preliminary investigations have pointed out that poor management and investment have indeed affected the airline’s operations. For example, un-strategic business decisions have dogged the operations of the airline leading to a model that is consuming more than it is generating.
Poor business decisions such as the buying and leasing of planes has left the airline highly indebted. The financial results released show that KQ loans were no longer sustainable. This calls for a thorough audit to establish the huge jump in the losses.
Looking at KQ’s statement of financial position, its long term debt increased from 31.4 billion to Sh50 billion from 2013 to 2015. In the same period, its debt-to-equity ratio rose from the theoretical optimal of 1.01 in 2013 to the watch-list level of 1.78 in 2014 before signaling red at (17.47) in 2015. Such a major increase in the level of debt, without corresponding increase in equity carried significant risks and financial instability.
To make a capital call on the shareholders might be appropriate, partly because the capital structure, holding other factors constant, is less than optimal and more significantly immediate. The two major shareholders, the National Treasury that owns 29.8 per cent and KLM that owns 26.7 per cent, will need to consider major capital injections to rescue the airline.
A debt restructuring would also be an amiable alternative, perhaps lengthening the maturity of debt and leases to reduce the level of financing costs. This will give the firm the flexibility to re-strategise on how to recover business operations.
It is therefore clear that tough choices need to be made. Often times shareholder rescue packages and creditor restructuring plans come with stringent terms and conditions, and rightly so.
The prospects for recovery are positive going forward. KQ has been awarded the best business class and best cargo airline in Africa three years in a row. Besides, the management’s determination to achieve better altitude is promising, and the skill set both in management and board leaves little doubt on the ability to turn around the firm.
0………………………………………………………………………0 Ends 0……………………………………………………………………0