The Madrid-based International Airlines Group (IAG), a holding corporation controlling five airlines (British Airways, Iberia, Aer Lingus, Vueling, and LEVEL),…
Kenya Airways To Undergo $1 Billion Restructuring
With the international airline market still struggling to recover from the drop in demand driven by the Covid-19 pandemic, carriers deeply relying on international connections have had to face tough choices in the past 24 months. One of these is SkyTeam member Kenya Airways, which will have to completely overhaul its structure in order to reshape itself to become sustainable in this new reality. The entire operation will cost over $1 billion, with most of the funds to be provided by the government budget.
During the summer, the Kenyan government toyed with the idea to renationalize the airline after it was successfully privatized in 1996, but recent reports suggest the hypothesis has been shelved by the East African country. The government, which still owns a 48.9% stake in the company, has already issued creditor guarantees for $750 million in order to allow the airline to continue operating in the face of dwindling cash flow due to lower demand. The Treasury has acquired an additional 19.1% stake in the carrier, and domestic lenders agreed to convert their debt into equity.
Kenya Airways has not reported an operating profit since 2014, and the losses have added to the heavy debts contracted to renew the long-haul fleet with the introduction of Boeing 787 Dreamliners.
According to CAPA, the International Monetary Fund is stating the airline will undergo a deep restructuring that will replace the nationalization plans. “The authorities do not intend to nationalize the carrier and are considering appropriate mechanisms to protect the Exchequer’s financial interests during the restructuring process,” the IMF said. In a letter to the IMF, Kenyan Finance Minister Ukur Yatain said the Government will take over $827 million of Kenya Airways’ debt, Reuters reported, at the same time providing $473 million as direct budgetary support for the 2022 and 2023 fiscal years.
Kenya Airways will also need “a radical overhaul of its business model to minimize the burden it places on the state given challenges threatening the aviation industry in the post-pandemic environment,” the letter stated. Changes will include “cutting back on its operations and staff, enhancing efficiency and renegotiating leases and suppliers’ contracts,” it said.
As of December 2019, Kenya Airways was operating a fleet of 36 passenger and two cargo aircraft. The short-haul fleet was made up of a mix of 12 Boeing 737 and 15 Embraer 190 aircraft, while the long-haul fleet consisted of 9 Boeing 787-8 aircraft. Its network included 41 destinations in Africa, only five of which are domestic, five in Europe, one in the Middle East — Dubai — three in Asia — Mumbai, India; Bangkok, Thailand and Guangzhou, China — and only New York in North America. Kenya Airways employs almost 4,000 people.
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