Kenya Airways (KQ, Nairobi Jomo Kenyatta) is set to increase its stake in Precision Air (PW, Dar es Salaam) to 49% should regulators approve a proposed USD10million cash injection into the Tanzanian carrier. Following a failed IPO on the Dar es Salaam stock exchange in early 2012, Precision Air has struggled to contain soaring costs attributed mostly to a volatile Tanzanian Shilling and jet fuel prices.
“Kenya Airways’ decision to inject $10 million into Precision Air is subject to approval by various regulatory bodies,” Precision Air chief executive Sauda Rajab told The EastAfrican newspaper. “Kenya Airways now owns 41.15 per cent of Precision Air. If concluded, that will increase KQ’s stake to 49 per cent, making it the majority shareholder.”
Among Kenya Airways' conditions for the funds are that Precision Air either sell or sell and lease back five of its aircraft (two ATR42-500s, two ATR42-600s, and five ATR72-500s are currently in its fleet), retrench more than a fifth of its staff, outsource some functions and draw up a plan to reduce debts while improving cash flow.
The injection is expected to allow the Tanzanian carrier to maintain its ongoing restructuring programme which has so far seen it return its two B737-300s to their lessors while terminating all but two of its regional routes in favour of a domestic-oriented network. The programme has begun to reap rewards with Precision Air posting a full-year operating profit of TZS3.61billion (USD2.21million) for its latest Financial Year.
While a shot in the proverbial arm, the injection falls far short of the USD33million management had angled for.
An attempt last year to court investment from the Tanzanian government was rebuffed on the grounds that as Precision Air is a Kenya Airways subsidiary, aiding it would be tantamount to Dar es Salaam funding a rival to its own national carrier, Air Tanzania (TC, Dar es Salaam).
