LONDON – Kenya Airways (KQ) CEO Allan Kilavuka said in an interview that the airline needs at least US$500m to survive the Coronavirus pandemic as first-half revenue for the airline plummeted almost 50%.
The Kenyan flag carrier, which is already 49% state-owned, must be fully nationalized alongside Kenya Airports Authority, responsible for running the Nairobi hub, under a holding structure similar to that of regional sector leader, Ethiopian Airlines (ET), according to Mr. Kilavuka.
The CEO 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,” adding that “Right now it is undercapitalized, given the effects of COVID.”
Despite this, the airline has not given up its ambitions to one day rival ET. However, it will be a challenge for KQ to match Africa’s largest and most consistently profitable airline. In the meantime, the company is focused on cutting staff and plane-lease costs by US$66m by the end of 2021. These are currently the airline’s biggest fixed expenses.
A Reduction in Fleet
Predictions into the airline’s future estimate that the airline will only require 24 aircraft over the course of the next two to three years out of a current fleet of 34 passenger aircraft and two freighters. According to the CEO, the airline is currently in talks with leasing companies on swapping fixed rentals for utilization-based rentals. Other proposals also include converting unneeded passenger aircraft for short-term cargo operations.
The carrier is also in talks with unions. These talks aim to reduce costs whilst resulting in the 1,400 job cuts the airline claims may be needed. The CEO said that measures will need to deliver 40% savings in an attempt to match the continuing decline in revenue. In the meantime, the staff is drawing reduced pay and deferring the balance to a later date.
Recapitalization of the airline would pare debt after the company’s liabilities increased to US$2bn (218.9bn KSH) at the end of June. it would also provide capital for growth once markets begin to rebound, Mr. Kilavuka said.
The funds could be in the form of equity of a loan from the government, the latter in talks to buy out minority investors such as KQ Lenders and Air France-KLM whilst MPs debate a nationalization bill for the airline.
Mr. Kilavuka said that the legislation would not lead to the airline merging with the airport authority but instead allow it to work hand in hand. This would be beneficial to both parties, as 60% of revenue at Nairobi’s Jomo Kenyatta International Airport (NBO) is generated by the carrier.
The CEO concluded, “We want Kenya to be the preferred hub for the region. 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.”
Kenya Airways Boeing 777-200ER 5Y-KQU. Photo: Airways file.