Category Archives: Boeing

Kenya Airways 2011 AGM

Having not been to an AGM in 2011, I decided to take an hour-long peek at the Kenya Airways (KQ) one as a shareholder and for sentimental reasons, including the love of aviation, because a KQ AGM was the inspiration for this blog.

There’s not been much change over the years: KQ, which has over 70,000 shareholders, has been generous with SWAG to shareholders over the years and this has ensured that they always have some good attendance (they also provide free transport from town to the Bomas venue of the AGM) – however this also means that their meetings are long and drawn out, with lot’s of time wasting (Chami), and inane questions (@ChrisKaranja 90% of all questions are related to umbrellas and food)

Some notable points

Investments: Regarding their Precision Air investment, (It’s now in the middle of an IPO) a shareholder noted KQ which owns 49% of Precision, posted a loss of Kshs. 188 million for the year to March 2011 on their investment – and looking at the Precision March 2011 ones, their pre-tax Kshs. 250 million profit was halved by forex loan revaluation adjustment of Kshs. 125 million (so the current shareholders in Precision swallowed the loss before the IPO). On their dormant investments, the KQ Chairman said one of them would be revived soon (Probably Flamingo Air, or one of two cargo companies)

– The March 31 annual dividend will be paid on 16 November…

Board– Amb. Denis Afande was retiring as a director, but there were no fireworks as in previous years – as this time, the board has settled on his replacement. Amb Denis Awori, a former Kenya rugby official and ambassador to Japan, and currently Chairman of Toyota Kenya was introduced by the KQ Chairman. He spoke briefly on his passion for the airline; he studied aeronautical engineering, was a trainee at East African Airlines (EAA was the precursor to KQ) and as ambassador to Japan participated in promoting the airline as it featured heavily in tourism promotions that were run.

Rights Issue: The Chairman spoke about their need to acquire more aircraft and pay for them including 10 Embraer 190 aircraft. The airline settled with Boeing in April on the delayed 787 aircraft (some of which were to replace Boeing 767) and the first one that was expected in October 2010, will now arrive in fourth quarter of 2013 when they anticipate loads will have increased significantly.

KQ are getting permission from shareholders (and closing the books) so they could go to the Capital Markets authorities in Kenya (& Uganda & Tanzania) but they were yet to determine the size or price. One shareholder (Mr. Karanja) cautioned that it was potentially dilutive (4X), came at a bad time (share price is low – a market price of 26 compared to NAV of 50 per share) and that a convertible bond or cheap overseas loans were better options. (FC) Karanja agreed with this, adding that they had not yet set the date, price, and structure, except that the funding plan would be a mix of debt and equity and that the new shares would create capacity for when the board decided the time was right. The KQ Chairman noted that both the principal shareholders – Government of Kenya and KLM supported the increase in capital and rights issue.

Kenya Airways 2009 AGM

Kenya Airways (KQ) is the cradle of blogging for me – one of their annual general meeting’s (AGM) is the place it all started, the place where the inspiration for blogging, since then it’s been a ritual to attend because I like planes and investments similarly. This year’s AGM, held on September 25, was the first I’ve attended at Kasarani sports gymnasium; previous ones were at their Embakasi HQ, Carnivore and Bomas grounds.

what was remarkable or noteworthy?

shareholders aplenty KQ always draws in shareholders, maybe its because they are rather generous with gifts a.k.a SWAG (more on that later); but the meeting hall is full of the whole rainbow of Kenyan shareholders from business peoples, to student types (perhaps sent as proxies), but mainly older people who perhaps bought shares as far back as the IPO in 1997.

KQ courtesy shames Safaricom a few weeks ago Safaricom held a no frills AGM that did away with many of the niceties that shareholders are used to. KQ, showed they this was no a costly affair to gold; they had shuttle buses from town to ferry shareholders to and from the meeting and also gave out lunch boxes to all shareholders. The AGM did not have the usual red t-shirt that shareholders are used to, but coming on the back of Safaricom, many were satisfied.

in the meeting – CEO Titus Naikuni talked about the tough year the airline had from the credit crunch, which affected travel budgets and the price of fuel, which escalated during the year.
Fuel hedging: FD Alex Mbugua tried to explain the subject of fuel hedging, something he said even many accountants don’t understand, but which had left the company with a 5.6 billion loss. The company was able to manage an operating profit of 4 billion ($52 million) before hedging kicked in, even though the price of fuel had gone up to Kshs. 24.5 billion representing 35% of their total costs.
– For the last 5 years they have engaged in fuel hedging, this worked in their favour till 2008 – when with oil looking to zoom past $200 they locked in some contracts, only for the price to nose dice to $40 . Overall in the five years the gains remain a positive Kshs. 516 million.
In response to shareholder questions he also said
– KQ board is reviewing hedging policy, and this is through the committee of the board
– some hedging parties have been reluctant to enter into contracts with KQ of late, and insist on some cash cover
– while they could not comment on recent prices they have hedged, some to 2011, he mentioned the numbers have swung in their way as at August and they may have a write back in profits this year when they brief investors in October 2009.

Shareholder questions (with answers)
– how will they control costs? Careful choice of routes, try and expand those that work, drop those that don’t. African routes account for almost 1/2 their revenue now.
– Why did employees strike? There were conflicting unions representing employees, and during labour talks, the employees went on an illegal strike as they demanded untenable wage increments. Management was able to come to an agreement with the help of COTU and is looking to learn from mistakes it may have made to avoid this again
– Why is company’s secretary (CS) not an employee? Company did a cost benefit analysis and decided to outsource the function. The CS is still Fiona Fox and she assured shareholders that she responds to all letters written to her; most of which relate to registrar matters
– Where are reports of KQ accidents in Ivory Coast and Cameroon? CEO said investigator reports are still being done by these countries authorities, and they don’t have the former, while the latter has not been released KQ so can’t comment on it. On the Cameroon crash, KQ and insurers had made settlement with 90 of the 105 passengers, but some relatives have chosen to sue the airline or the aircraft manufacturer (i.e. Boeing)
– Why did annual report come out just 3 weeks to AGM? Management said they would try and improve and not just comply with the legal minimum for listed companies
– Why not use Precision Air aircraft (a Tanzanian airline in which KQ owns 49%) to fly to Kisumu since they have no more turbo-props for short runway? The repairs at Kisumu are short term did not warrant fleet change, and will resume flying there with their Embraer 170’s when repairs are done
– Do they plan to fly to the USA? KQ has never said they would fly to US; they have good partnerships and networks (KLM) through which they get feeds from US already, and JKIA will have to make some modifications before they can fly to US.

source: airliners.net

– What will be done about Boeing 787 which they have ordered but us yet to fly? KQ are talking to Airbus and Boeing about getting some replacement aircraft (won’t be brand new) but decision will be made in a few months
– One shareholder asked why managers /directors interest are divergent from KQ i.e. directors own few shares, while executive directors compensation is significant part of employee compensation: The Chairman said buying KQ shares was a personal decision of directors and he himself bought his shares at the time of IPO when he was not even a director of KQ. The CEO said management have not had any salary increments despite what union said during the strike.

Minor #FAIL’s: – The company registrars who had dozens of computers to register shareholder before the meeting, but whose computers were not connected. Anyone could have walked in. They also ran out of ballot papers
– The gymnasium had no water (though understandable at this time of water rationing). It was also not suited to the meeting format; the directors sat so far as to be indistinguishable except on TV screens while poor microphones/acoustics of hall meant some questions/comments were not audible
– Shareholder elections; this year, there was only one independent candidate on the ballot I guess they have realized of the futility of this exercise – and the results out today show all the board nominated director were unanimously re-elected
– CDSC (the share people): had a tent outside to register any of the 78,000 shareholders of the company; but they didn’t just ask if you had immobilized your shares, they practically demanded you pass by their tent and register to receive statements by e-mail or SMS (do away with the postal service)

Goodies: – Dividend of 1 shilling ($0.013) per share despite the loss. shareholder’s register closed day of meeting and this will be paid after October 23
– Lunch box by Sarova with drinks (yoghurt, soda & water), meats (drum stick, beef sandwich, boiled egg), fruits (banana, apple), and breads.

Reading the Kenya Airways Tea Leaves

excerpts from the 2009 Kenya Airways annual report

pic from airliners.net

Investor performance: – Annus horribilis – airline industry performance has been bad with over 40 airlines suspended from the IATA settlement system in the last 15 months for non payments
– Turnover of Kshs. 71.829 billion (~$945 million), and operating profit of 4.04 billion, but the year ended with a pre-tax shocking loss of 5.66 billion ($74.5 million) owing for fuel hedging. In 2008 turnover was 60.47 billion and a pre-tax profit of 6.52 billion
Have 76,703 shareholders, 35 243 who have immobilized their accounts
– KQ has become more sensitive to fuel price changes and less sensitive to currency fluctuations – a 1% increase/decrease in fuel impact the profit by 269 million ($3.5 million). Report does not mention who fuel hedge partners, but hedges ran up to December 2010
– Their investment in Tanzania’s Precision Air is good. Their 49% stake brought in 62 million in profit
– As a result of currency restrictions, KQ has 58 million ($763,000) in Seychelles that they could not repatriate, but the government there has allowed them to utilize it to procure services
– Have loans of 32 billion (with 23 billion or ~$303 million) owed to Barclays, also from ABN Amro and EXIM Bank USA – all at rates between 4.5% and 6.6%

Routes: – fly to 37 African cities, 5 Asian and 3 European destinations
– Revenue comes from Kenya (4%), Africa (46%), Middle East & Asia (22%), and Europe (29%)
– Stopped Lamu because they don’t have a plane that can land there (after they sold turbo-prop)
– Paris is back on, but KQ scrapped Nairobi – Guangzhou direct because of poor traffic. Guangzhou now served through Bangkok
– Aim to offer more night flights to Nairobi for easier connections
– Have run some enticing promotions to celebrate new routes new routes – $43 to gabarone (Botswana) and $44 to Ndola (Zambia)

Embraces new media : – website has 230,000 visits per month and sales have passed $10 million (that’s about 1% of a year sales)
– No. 7767 is an SMS alert number that passengers can use to get information of flight status, delays, cancellations etc.
– About 3% check in via web, and booking for hotel and cars is also at a good rate
– have installed wireless network for staff to serve passengers, for baggage crew, engineering teams to coordinate flights why not wi fi for passengers?
no mention of twitter @kenyaairways

Passenger services: – Busiest passenger months are July -August (~270,000 passengers p.m.) while lowest are February (~200,000)
– On time flights have gone up as a result of a zero tolerance policy on delays
– Airline report again laments that the Jomo Kenyatta international airport (JKIA) – their hub- has not kept up with their rapid growth in passenger numbers – and transit facilities inadequate
– Report also again appeal to the Kenya government to grant transit visas to their west African passengers flying to the far east via Nairobi
– KQ bought 3 buses to ease passengers’ convenience, long walks to flights and protect them from weather
– KQ still runs Bombay Ambulance that provided discounted tickets to airlift needy patients traveling for medial operations overseas (donated 20 tickets last year)

Employee relations: pre-strike – Has 4,240 employees
– KQ sold land in Embakasi to a developer who will put up 332 houses, in which preference will be given to KQ staff
– Have 340 pilots and 850 cabin crew. Plan to hire 68 pilots this year (48 direct, 20 ab initio) and another 23 over the next 5 years to replace retiring pilots

Fleet: – KQ owns Boeing 777-200, 737-300, 737-700 aircraft
– KQ leases Boeing 737-800s and 767s, as well as Embraer 170s (paid 4.9 billion in leases in the year)
– SAAB turbo-props were sold to a European buyer in May, so now have an all jet fleet now
– Paid deposits of 1.65 billion ($21.7 million) to Boeing for the yet to fly 787 whose deliveries they expect between 2013 and 2015

Green airline: – planted 450,000 tress in Ngong forest with other corporate partners, costing KQ $220,000
– will map their carbon foot-print in 2009, though they cite a report that global aviation contributes only 2% to carbon emissions

AGM – their annual general meeting is coming up at the end of the month
-shareholders will vote for a dividend despite the (non-cash fuel hedge) loss for the year, and as is the norm this year with Kenyan listed companies, also for electronic mailing of reports or their publication of account sin the newspapers to replace expensive mailings through the post office to each shareholder
– KQ director elections are usually interesting affairs shareholders will be asked to (i) re-elect Chairman Evans Mwaniki and Denis Afande who must be re-elected each year because they are over 70 years old. (ii) Also new to the board is group finance director Alex Mbugua, and (iii) there will be a new director since a government re-shuffle will bring new transportation permanent secretary Cyrus Njiru on board as the main government representative replacing adan ali. (iv) There is also a vacancy as KLM nominee Micah Cheserem resigned during the year when he was appointed chairman of Kenya’s Capital Markets Authority.