Kenya’s national carrier, Kenya Airways, has reported an operating profit for 2022 after seven years of heavy losses. Kenya Airways’ operating profits – that is, profits before debt repayments and taxes are deducted – stood at 10.5bn Kenyan shillings ($79m) in 2023, a sizeable increase from the 5.6bn shillings ($42m) loss posted the year before. The airline is still in the red, with an overall loss of 23bn shillings ($173m): its chairman Michael Joseph has said, however, that the return to operational profitability is a “significant milestone”.
“These figures highlight the airline’s remarkable performance over the year and provide encouraging signs of continued recovery within the air transportation sector,” he added.
Sindy Foster, principal managing partner at aviation consultancy firm Avaero Capital Partners, explains that “both internal and external factors have contributed to these results.”
“Internally, they have increased capacity and increased flight frequency and available seat kilometres [passenger capacity]. They have introduced cost containment measures, renegotiated and terminated leases and increased revenue,” she says. “They have increased profits across group activities, including freight, mail, and ground handling, not just passenger services.”
“Passenger numbers increasing across the continent, with passenger travel returning close to pre-coronavirus numbers. This will also have driven increased revenue, particularly if they retained more passengers and acquired more due to better operational performance metrics,” she adds.
Sean Mendis, an African aviation expert, tells African Business that the figures are “very positive for Kenya Airways,” but notes that the airline still faces major challenges.
“Being back to running an operating profit means that they are no longer losing money on every passenger they fly. That has been the case for a number of years now – every additional passenger they flew, they lost more money, which made it really questionable whether the business was viable in the long term,” he says.
“They have turned a corner and that is very important for them, but it does not mean they are ultimately making any money. This is just the first step on a very long journey towards becoming a viable business.”
Kenya Airways has been embroiled in serious financial difficulties in recent years. The main reason for this is the enormous pile of debt which the airline took on in 2017 when it secured a $841.6m loan from US Exim Bank. The loan, $525m of which was guaranteed by the government, was used to purchase seven planes and a new engine as part of an expansion drive. The airline also has several smaller
outstanding debt liabilities to local suppliers.
The company quickly fell into insolvency in 2018 under the burden of this debt. Since then, the collapse in international travel during the Covid-19 pandemic, the weakening of the Kenyan shilling, and an environment of higher interest rates have all conspired to make the company’s debt pile even less manageable. More broadly, the strong performance of Ethiopian Airlines and Emirates in Africa has also made Kenya Airways relatively less competitive on the continent.
Since the 2018 insolvency the government, which now owns 48.9% of the airline, has been forced to cover hundreds of millions of dollars in debt repayments to Eximbank to save Kenya Airways from bankruptcy proceedings. Mendis says that the company’s debt situation means “they are currently living a hand to mouth existence.
“They are funding their debt payments and their costs out of operating revenues. That makes them very vulnerable to external shocks,” he notes. “Covid-19 was a ‘black swan’ event,” one that could not be predicted. But, Mendis continues, “if you are operating in Africa, you are going to have other shocks, such as civil unrest or smaller-scale pandemics. There is a wide range of things that can happen in Africa, more so in the rest of the world. They need to get themselves into a position where they can start thinking long-term rather than just worrying about where next week’s salary payments or fuel bills are going to be paid from.”
To this end, the airline has recently announced plans to recapitalise, with its CEO Allan Kilavuka outlining a proposal to sell a 49% stake in the company by the end of the year. It is hoped that the move could raise up to $1.5bn which, in turn, would allow Kenya Airways to get itself out of negative equity, repay its remaining debt to Eximbank, and potentially expand its fleet.
Kilavuka has said that the firm is focused on completing a “capital restructuring plans, whose main objectives are to reduce the company’s financial leverage and increase liquidity”.
Foster believes that the recent turnaround in Kenya Airways’ performance and return to operational profitability could make the airline appealing to investors. “If it can continue its positive trajectory and maintains its objectives of increasing revenue while constraining costs, it will be attractive to an investor or airline equity partner who can benefit from adding Kenya Airways and its network to its portfolio,” she says.
Mendis suggests that raising the amount of cash Kilavuka is targeting may be a difficult task as the aviation industry is notorious for its low margins. However, he believes that other international airlines could potentially be tempted to acquire Kenya Airways’ shares in order to expand into the African market.
“The reality is that there are many sectors which give far better returns than aviation,” Mendis says. “I do not think that a ‘financial’ investor would look at it.”
“But I think a ‘strategic’ investor could find value in Kenya Airways – whether that is an international airline looking to increase its presence in the African market, another African airline looking to partners with them, or a multi-sector company looking to use the airline as a way to get a foothold in Kenya.”
While the balance sheet continues to look bleak for Kenya Airways, there are several trends which suggest that brighter times might lie ahead. Chidozie Uzoezie, aviation analyst and founder of the African Aviation Group, points out that “over the past few years, Kenya Airways has been forward-thinking by aggressively forming partnerships with other airlines and enhancing its brand value.”
“It has codeshare partnerships with several blue-chip carriers, including Delta, British Airways, Air France, and Saudia. These partnerships have helped Kenya Airways to spread its wings beyond its immediate network, thereby boosting its revenue.”
Uzoezie also adds that trends in African travel could be working in Kenya Airways’ favour. He argues that Kenya could see an influx of tourists from other parts of the continent because of the government’s move to abolish visas for visitors coming from other African countries.
He points out that Nigerian tourists – who are struggling to obtain visas in the UAE and South Africa, traditionally two popular destinations for Nigerians – could become a particularly profitable demographic for Kenya Airways as they seek alternative destinations.
“With the diplomatic face-off between Nigeria and the UAE, as well as the challenges Nigerians are facing in obtaining visas in South Africa, Kenya has become low-hanging fruit,” Uzoezie tells African Business. “For leisure travellers and holidaymakers from Nigeria, Kenya is now a viable alternative to Dubai and South Africa. This, as well as government initiatives such as abolishing visa requirements for African tourists, will definitely yield positive results for Kenya Airways as they drive increased traffic to Kenya.”
Uzoezie is cautiously optimistic, saying he expects “Kenya Airways to become bigger and better, with a more robust cash flow, over the next couple of years”. However, he adds that “although now posting an operational profit, Kenya Airways is still very much in the recovery phase.”
Mendis strikes a similar tone. “Kenya Airways has a lot of good potential,” he says. “But unless that debt issue and the recapitalisation is sorted, they will ultimately fail.”
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