Kenya Airways CEO Seeks $500 Million From State to Survive Virus

(Bloomberg) -- Kenya Airways Plc needs at least $500 million to ride out the coronavirus crisis after first-half revenue plunged almost 50%, Chief Executive Officer Allan Kilavuka said in an interview.

The carrier, which is 49% state owned, must also be fully nationalized alongside Kenya Airports Authority, which runs the Nairobi hub, under a holding structure similar to that of regional leader Ethiopian Airlines Group, he said.

“If we don’t restructure the airline, and take the airline as is into this organization, then we are doing a disservice to the taxpayer,” Kilavuka said. “Right now it is under-capitalized, given the effects of Covid.”

Kenya Airways hasn’t given up on its ambitions of one day rivaling Ethiopian, according to the CEO, though it will be a long stretch to match up with Africa’s largest and most consistently profitable airline. In the meantime, the company is focused on cutting labor and plane-lease costs, its biggest fixed expenses, by $66 million through the end of 2021.

Projections indicate that Kenya Airways will need only 24 aircraft over the next two or three years, out of a current fleet of 34 passenger planes and two freighters, Kilavuka said. Talks are underway with six leasing firms on swapping fixed rentals for utilization-based terms, while other proposals include converting unneeded airliners for short-term cargo use.

Talks with unions are focused on eliminating costs without resorting to the 1,400 job cuts the company says may be needed. Measures will need to deliver 40% savings to match continuing revenue declines, the CEO said. In the interim, staff are drawing reduced pay and deferring the balance to a later date.

Recapitalization would pare debt after the company’s liabilities increased to 218.9 billion shillings at the end of June, while providing capital for growth once markets begin to rebound, Kilavuka said.

The funds could be in the form of equity or a loan from the government, which is in talks to buy out minority investors including KQ Lenders Co. and Air France-KLM as lawmakers debate a nationalization bill.

The legislation won’t merge Kenya Airways with the airports authority but allow them to work hand in hand, especially since 60% of revenue at Nairobi’s Jomo Kenyatta International hub is generated by the carrier, Kilavuka said.

“We want Kenya to be the preferred hub for the region,” he said. “For that to happen the airport needs to grow and modernize and the airline needs to be efficient and responsive to the needs of the market.”

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