Why Kenya Airways made Sh26bn loss

Poor management decisions, operational inefficiencies and failure to counter competition are likely to have caused the Sh25.7 billion Kenya Airways loss.

Preliminary evidence gathered by a Senate Select Committee tasked to look into the airline’s operations has revealed strategic errors that led to the near-collapse of Kenya’s flag carrier after its loss figure grew more than 600 per cent in one year.

The committee chairman, Prof Anyang’ Nyong’o (Kisumu senator), said the meetings held with KQ management, so far, had given crucial indicators on what is ailing the airline, which is surviving on huge debts.

“Prima facie evidence shows the airline faces major problems like poor investments decisions by management on the buying and leasing of aircraft,” said Prof Nyong’o.

The airline is also said to be involved in expensive and non-competitive tickecting, which led to loss of passengers.

Kenya Airways is also faulted for its failure to explore more African routes.

The Senate also observed that frequent industrial unrests by employees prevented the creation of a healthy business environment.

Poor customer relations is also said to have failed KQ, as well as frequent cancellation of flights, which is blamed for lack of passengers.

Analysts, are, however, divided on possible bailout strategies for the cash-strapped carrier. While some back a government bailout, others propose the involvement of a different equity partner.

Standard Bank investment analyst Eric Musau believes the airline is headed for collapse if no rescue plan is hatched quickly. He said the airline risks losing all its assets to creditors in the event that no action is taken to save it.

“Planes bought on loan and those leased are likely to be the first to be taken away. That means the airline, which is already insolvent, would sink immediately. The creditors may not realise their full value considering that KQ now has more debt than assets,” Mr Musau told the Nation.

He said the government would have to relax its grip and give private investors a chance if it cannot provide sufficient funds to lift the carrier back onto its feet.

“We have no choice but to save the airline. It is not easy to run this kind of a business,” he said.

Ashanti research analyst Kamanda Morara said any airline could survive if its debts are restructured, unnecessary assets disposed and costs cut. He, however, agrees that if creditors demand what the airline owes them, then Kenya Airways will have to wind up.

Aviation analyst James Wanjagi said while both KQ and Ethiopian Airlines embarked on ambitious growth plans, KQ’s flopped, to its competitors’ advantage.