Kenya Airways to sell assets, seeks loan to beat cash crunch

Kenya Airways will sell some older planes and land and is negotiating a bridging loan to help it through a cash crunch caused by a drop in passenger numbers, its chief executive said on Friday.

The carrier, part-owned by AirFrance-KLM, made a big loss in the half-year to September after a spate of Islamist militant attacks drove tourists away from Kenya and made it tough to fill its fleet of new Boeing 787 Dreamliners.

Chief Executive Mbuvi Ngunze said the outlook for the peak holiday season in July and August was steady for now but could be hurt by the latest attack in Kenya. An assault on Garissa University College killed 148 people. Some beach hotels and safari lodges have already reported cancellations.

The company reported first-half losses of Sh12.5 billion, while passenger numbers were down to 64 per cent of capacity in the period from 69 per cent in the prior year period. The airline’s shares have plunged by almost a fifth in 2015.

Ngunze, who took over in 2014, said the airline is selling four Boeing 777-200 planes, a Boeing 767 and some land it owns to help cut its debt profile.

Early retirement plan

“We have a fundraising target in terms of these assets,” he said, adding it would help to “deleverage our balance sheet.” He did not disclose the target.

The company’s debt to capital ratio was 275 per cent at the end of the financial year to March 2014, with net debt of Sh77.8 billion. Ngunze did not give more recent figures.

The airline is seeking a bridging loan to buy time to raise longer-term funds in the form of debt, equity or both.

“We have bridging finance that we have been negotiating with a certain financier which we are in the last stages of that negotiation,” he said. He declined to name the financier or the amount.

Aircraft sales will contribute to a reduction in the number of planes operated to 35 from 45 last year, Ngunze said. After that, the fleet will include Embraer and new generation Boeing 737 planes for regional routes, as well as Dreamliners for long-haul flights. He said Kenya Airways had not fully benefited from the slide in the global oil prices due to its fuel-hedging policy.

Adding to challenges, a dispute with the pilots union over an early retirement plan led to the cancellation of dozens of flights. Ngunze said the Labour Ministry was mediating and the issue would be resolved soon. By 1028 GMT, shares were trading at Sh7.15, barely moved from the previous day’s close of Sh7.10.

—Reuters