Kenya Airways (KQ, Nairobi Jomo Kenyatta) is talking to a range of airlines about a strategic equity partnership through which it hopes to raise between USD1 billion and USD1.5 billion to recapitalise the flag carrier, exit its negative equity position, repay loans, and facilitate growth, according to CEO Allan Kilavuka.
As government support is limited due to fiscal constraints, the carrier is seeking an airline partner that complements its operations and understands the industry well, with no particular inclinations on where it is from, he explained to the China Global Television Network (CGTN).
"We're looking for an airline that is going to complement us, an airline that understands the industry well. We have no specific preferences in terms of origin or the partners, but we're talking to a wide range of them. We believe that because our fundamentals are right, and we have a good plan for the next five years, we are a very attractive proposition," he said.
He declined to be drawn into who Kenya Airways has been talking to but emphasised that it needs to be a good fit in terms of network, fleet, and growth plans.
The airline is looking to tie up a partner by the end of 2024, according to Business Day Africa, citing undisclosed sources. Kenya Airways is part of Skyteam, whose prominent member Air France-KLM continues to hold a 7.12% share in the East African carrier following a previous privatisation initiative.
Financial pressures
Kenya Airways has typically relied on the country's National Treasury for loan repayments and operational expenses. However, over the last year, it has not received direct state support, a situation that is likely to continue. Kilavuka said that "if the government could, they would have already given that funding because they believe in the strategic importance of the airline. They will not be doing that because of the stretched fiscal position."
He had elaborated in an earlier statement that "we will continue to engage the government on recapitalising the business to place Kenya Airways on a stronger footing and provide a stable base for long-term growth," adding that the government, as Kenya Airways' largest shareholder, had expressed its support for cost optimisation at the company.
On March 26, Kenya Airways Group posted its first operating profit in six years, KES10.5 billion shillings (USD80 million) for the year ending December 31, 2023, compared to an operating loss of KES5.6 billion (USD42.7 million) the year before. The group's total revenue rose 53% to nearly KES178 billion (USD1.36 billion), attributed to a 43% growth in passenger numbers. Fleet costs were 47.5% lower due to rationalisation.
Still, overheads increased by 22% due to employee costs and foreign currency losses. Forex losses on monetary items, loans, and leases totalled KES24 billion (USD183 million).
"From a finance point of view, we have to solve the question around our dollar obligations. The larger they are, the bigger the loss we will be reporting from a forex loss perspective. So what we have to do is to deal with that question, and the only way to deal with it at the moment is to recapitalise," Kilvuka told CGTN.
During the financial year, Kenya Airways could not repatriate about USD10 million of its revenue from Nigeria, Burundi, Malawi, and Ethiopia, countries that are struggling with low foreign exchange supplies, he said, conceding: "I'm happy to report that at least for Nigeria the matter is resolving, so we are able to repatriate some of the funding. However, for the other countries, it is still slow."
Fleet plans
Kilavuka confirmed that Kenya Airways' short-term fleet plan includes adding four B737-800s - two passenger versions and two freighters - while also progressively replacing its Embraer fleet of thirteen E190s. The airline has been looking at Boeing narrowbodies, he said.
"Later this year, we will be exiting two Embraers because of the new capacity that is coming in. What we are trying to do is simplify our fleet and also get bigger-capacity aircraft because one of the challenges we have with the Embraers is that although they are fantastic route openers, they are also low-capacity narrowbodies, so that when you have passengers who are carrying a lot of luggage, you have challenges uplifting all the luggage, and that's the main reason why we are exiting that fleet. It's a good route opener but once routes have matured like most of ours have, that needs to be upgraded," he explained.
Kenya Airways currently operates a fleet comprising two B737-300(SF)s, eight B737-800s, two B737-800(SF)s, nine B787-8s, and the thirteen E190s, according to ch-aviation fleets data. It also wet-leases in one A330-300 from Hi Fly Malta (3L, Malta International).
Pan-African alliance
Kilavuka appeared optimistic about the continued prospects for his much-touted pan-African airline alliance with Kenya Airways and South African Airways (SA, Johannesburg O.R. Tambo) as founding members, but acknowledged that plans to finalise it in 2024 have been delayed due to SAA's failed privatisation deal with the Takatso Aviation consortium.
"The discussion we're having about the pan-African airline group is complex. It will take longer than we originally anticipated [...] but we believe in the story; we believe that it is important for us as African carriers to facilitate the industry, because the way it is fragmented right now makes it extremely difficult for us to scale up." He added: "We hope that by next year we'll get some clarity on what the roadmap is for the pan-African airline group [and] what we have decided to do is to look at the low-hanging fruit between the two airlines and see what we can do now."
His sentiments were echoed recently by South Africa's public enterprises minister, Pravin Gordhan, when he responded to a question from ch-aviation on the prospects of an alliance between SAA and Kenya Airways. "We are open to all sorts of arrangements, partnerships, code-sharing and so on. That will continue to be explored by the board of SAA, and if there is a viable proposition, I'm sure the [South African] government will look at it," he said.
