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Kenya Airways hopes improving tourism will lift fortunes

31 July 2015, 09:21

Nairobi - Kenya Airways sunk deeper into the red in the year through March, sending its shares plummeting on Thursday, but CEO Mbuvi Ngunze said the tourism slump that sparked the losses may have bottomed out.

The airline, part-owned by AirFrance-KLM, has faced rising debts due to new plane purchases and has been in the red for the past three years as Kenya's tourism industry was hammered by Islamist militant attacks in the country.

The carrier, one of Africa's largest, said its pretax loss widened to 29.71 billion shillings ($293 million) for 2014/15, from 4.86 billion shillings a year earlier, hurt by higher fleet and financing costs and an unrealised fuel hedging loss.

Passenger numbers rose 12.4 percent to 4.18 million, boosted by Jambojet, a low-cost carrier launched in April last year, but the impact was blunted by lower yields on passenger revenue.

The carrier said its planes are often not full and increased competition from Gulf carriers forced it to discount some of its fares.

Ngunze said leisure travel might start to pick up as Britain and some other countries had lifted warnings against travel to the Kenyan coast where many resorts are located.

"The leisure travellers particularly from Europe, with the adjustments in travel advisories, you'll probably see them in the back end of the year and into next year," he told Reuters after an investor briefing.

The airline has appointed Cairo-based African Export-Import Bank (Afreximbank) to arrange a $200 million bridging loan and advise it on long-term capital raising, he said.

"This financing is critical for us," Ngunze said.

Kenya Airways' shares plunged 16 percent in reaction to the results, and have now lost 50 percent in the past five months on mounting concern about its financial position.

Chris Kirubi, director of Kenyan investment firm Centum Investment Company and a shareholder in Kenya Airways, called for the airline to be de-listed from the stock market.

"You cannot run a business like this on loans. This is a totally under-capitalised business," he said during an investor briefing with the airline's management. He would not disclose how many Kenya Airways shares he owns.

The carrier is also selling seven older planes and some land and it expects to raise another $100 million from the sale. Total debts stood at 130 billion shillings at the end of March against a negative equity of 6 billion shillings.

"We had growth of the fleet which was not matched by revenue growth," Finance Director Alex Mbugua said, referring to the purchase of Boeing 787 Dreamliner planes, starting in 2013.

Kenya Airways plans to launch direct flights to the United States after U.S. President Barack Obama announced during his visit to Kenya at the weekend that the two countries were in talks on the issue. The talks are expected to conclude by September, Ngunze said.

Fleet ownership costs doubled to 25.93 billion shillings, mainly due to an impairment of 5.58 billion shillings from a writedown in the value of Boeing 777-200s aircrafts on sale.

The firm booked an unrealised loss of 5.78 billion shillings from its fuel hedging after the slide in the price of crude.

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- Reuters


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