Kenya Airways May Borrow $347m As Fuel, Wage Costs Rise – Citigroup

Kenya Airways

VENTURES AFRICA – Kenya Airways may have to borrow at least 30 billion Kenyan Shillings ($347 million) over two years to meet rising fuel and employee costs, according to Citigroup Global Markets analysts.

As the airline suffers shrinking cash inflows as its passenger base dwindles, operating costs are nonetheless rising as global fuel prices grow, compounded by high wage costs. This may lead the company to take out debt to cover the financial gap.

“Operating cash flow shortfalls imply further debt funding needed. We estimate KQ may have to raise about Sh30 billion in loans over the next two years,” Citigroup said in a report, according to Business Daily.

The report explained that this figure would be “in addition to secured aircraft debt/finance leases, in order to retain cash at the current level of Sh6.8 billion, including drawing down its unused facility of Sh17.2 billion.”

Kenya Airways has been battling dwindling profit margins for some time now; and has particularly focused on cutting wage costs which had risen to 13.2 billion Kenyan Shillings ($153.5 million) by last year.

The company dismissed 600 employees in 2012 in a bid to lower costs, however, following a legal action filed by the dismissed employees, the airline in December found itself faced with a court order to reinstate 475 of the employees due to failure to comply with termination negotiation and communication requirements.

The airline has felt the impact of European economic woes acutely, pointing to the economic instability as a major player in the company’s financial difficulties as its passenger base drops in response to less spending on air travel by the European consumer base.