Kenya Airways Plans $690 Million Reorganization, Job Cutsby and
Carrier to raise 40 billion shillings in debt, equity funding
Kenyan government has said it will help fund bail-out
Kenya Airways Ltd., sub-Saharan Africa’s third-largest airline, is planning a 70 billion-shilling ($690 million) restructuring program that includes reducing its fleet and cutting staff, Chief Executive Officer Mbuvi Ngunze said.
The carrier, based in the capital, Nairobi, has been working on a turnaround plan after reporting the largest loss in Kenyan corporate history last year. The carrier plans to raise 40 billion shillings through debt and equity funding as part of its strategy, Ngunze said in an interview aired Wednesday on Citizen TV, a Nairobi-based broadcaster.
“Do we need to rationalize our staff? Do we look at opportunities to reduce costs? Yeah,” he said. “We will be totally sensitive with this as this is an emotive issue, but certainly there will be some hits.”
The carrier has sold two Boeing 777-200 aircraft and will sell two more, and it’s searching for carriers to sub-lease four of its Boeing 777-300 planes for a period of four or five years. A reorganization plan developed by McKinsey & Co. seeks to return the company to profit and may result in its 4,000-strong workforce being cut by at least 30 percent, according to Eric Musau of Standard Investment Bank Ltd.
Last month, the airline appointed PJT Partners Inc. to advise on how to restructure the company’s balance sheet and raise long-term financing.
Kenya’s government, which owns 28 percent of the carrier, has said it will help bail out KQ, as it’s known. The state has been reviewing the airline’s partnership with Air France-KLM, the second-largest shareholder. The government may increase its stake to 50 percent equity, depending on how other shareholders want to participate in the restructuring, Treasury Secretary Henry Rotich said last month.
The government is confident about the turnaround strategy, Rotich said in an interview Wednesday in Nairobi. The state is providing bridging financing as work is completed on the recapitalization plan that will focus on “growing it and financing it to have a stable balance sheet going forward,” he said.
The relationship between Kenya Airways and Air France-KLM “remains important to KQ, but like many partnerships needs to be modified,” Perry Cantarutti, president of the SkyTeam airline alliance that includes the Kenyan carrier, said last week.
Kenya Airways shares have fallen 30 percent since July 30, when the company reported a 25.7 billion-shilling loss. Over the past decade, the stock dropped from a record high of 142.74 shillings to 4.40 shillings on Thursday.