Category Archives: Kenya Airways

Kenya Airways 2019 results

Kenya Airways announced their results for 2019, which its Chairman Michael Joseph described as a reasonably good year in which they opened new routes, improved on performance and flew a record number of passengers, but one in which they had to make new accounting standard adjustments and then end by looking ahead to a Coronavirus world.   

Group CFO Hellen Mwariri read the financial results starting with an explanation of IAS17 that was replaced by IFRS16. In 2019, the airline had shown improved revenue of Kshs 128 billion which was a 12% increase from the Kshs 114 billion the year before. They had flown 5.1 million passengers, a 7% increase and opened new routes to Genera and Rome with connections to Malindi.

The revenue growth of Kshs 14 billion was offset by increased direct costs from more flights of Kshs 5.8 billion, increased fleet ownership costs with the return of two Boeing 787s that were previously-leased out, resulting in a Kshs 6.4 billion expense, and increased finance costs which went up by Kshs 4.9 billion.

The main difference with the new accounting standard was that leases which were not on the balance sheet, are now included, with interest as an expense and this would affect airlines heavy on leasing. She said that mainly as a result of the 76% increase in finance costs, the airline’s loss for the year also increased by 71%, going up from Kshs 7.5 billion in 2018 to Kshs 12.9 billion in 2019. 

Much like former CEO Mbuvi Ngunze, the airline’s new Group CEO Allan Kilavuka, who recently took over from Sebastian Mikosz, was welcomed with an in-tray of increased losses and new challenges, this time brought about by Coronavirus. 

He estimated the impact of Coronavirus was a revenue loss of revenue, to date, of $150 million (~Kshs 16 billion) and that even if they start flying in June, he estimated that revenue will be $400 million (Kshs 43 billion) lower than 2019.

He said the airline was tentatively preparing to resume flights on June 8 2020. For now, they have converted three Boeing 787’s for cargo and have daily flights carrying flowers (1,200 tons to Europe so far), food (2,600 tons to Europe & the Middle East) and medical equipment (1,500 tons), while occasionally also operating occasional passenger repatriation flights.

The losses sent the airline back into negative equity territory, but the Chairman spoke of light at the end of their restructuring, which was through the planned creation of an airline holding company, that would include the Kenya Airports Authority and probably a re-nationalised Kenya Airways. A bill is with the Attorney General and should go to Parliament in a matter of weeks. Parliament has, in essence, revived an earlier plan to enable the airline to compete with its regional peers that are all state-owned. 

Coronavirus in Kenya: Week One

The Outbreak

  • March 13: The Ministry of Health confirms the first case of coronavirus in Kenya on March 12 from a Kenyan citizen who returned to the country from the USA via London 
  • March 22: Kenya confirms 8 new cases, bringing the total number to 15. It is tracing 363 other people and institutes a mandatory shutdown of major social activities in the country. 

Banking Industry:

  • March 15: President Uhuru Kenyatta appealed to banks and mobile operators to reduce the costs of mobile transactions and calls on Kenyans to use credit cards, mobile money and other forms of cashless payments. 
  • March 16: Safaricom waived fees for M-Pesa payments below Kshs 1,000 (~$10) for 90 days and raises M-Pesa transactions limits to Kshs 150,000 and also increases daily transaction caps and maximum mobile money wallet sizes up to Kshs 300,000 ($3,000). Airtel and Telkom Kenya follow suit a day later. 
  • March 18: Bankers meet the President at State House where the Central Bank of Kenya (CBK) Governor announces that all commercial bank personal loans that were there in good standing on March 2, are eligible for extensions for up to one year while SME and corporate borrowers can approach their banks to be assessed for loan restructuring, with the cost borne by banks. Also, that banks would no longer charge fees for customers to check their bank balances.
  • Different banks announced their compliance with the new rules.   
  • March 19: The Kenya Bankers Association confirms that all banks will assist clients who come in to speak about how COVID-19 has affected their employment or business operations, and whose loan repayments were up to date as at 2 March 2020. They also ask all customers to observe 1-metre (or 3 feet) social distancing at branches
  • March 20: The CBK announces presents Kshs 7.4 billion ($74 million) to the Government to support the coronavirus fight efforts. This it says are the proceeds from the demonetization exercise that concluded in September 2019 and is the sum of (old) Kshs 1,000 notes that were not turned in and which the CBK had classified as being miscellaneous receipts. 

Famous People in Quarantine

  • March 18: Senator for Kericho County Aaron Cheruiyot announces on twitter that he is in self-quarantine. 
  • March 19: Members of Parliament and Parliamentary staff who arrived from London on March 9 are reported to be in self-quarantine. 
  • March 19: Ambassador Macharia Kamau Kenya’s Principal Secretary to the Ministry of Foreign Affairs announces on twitter that he is in self-quarantine after returning from New York. 
  • March 20: Jane Marriott, the British High Commissioner to Kenya announces on twitter that she is in self-quarantine, following her trip to the UK. 
  • March 22: Kenya’s Cabinet Secretary for Health announces that Gideon Saburi, the Deputy Governor of Kilifi County, has been apprehended and put in a mandatory 14-day quarantine after he failed to isolate himself after returning from a trip to Germany. Also that he will be charged in Court after his isolation period. 

Mandatory Quarantine in the Eastern Africa region 

  • March 18: Uganda announces immediate mandatory quarantine for arriving visitors, at their cost.  
  • March 21: Ethiopia announces mandatory for passengers arriving from March 23, at their cost. However, diplomats will be quarantined for 14 days at their embassies, while transiting passengers will be placed in isolation at the Ethiopian Skylight Hotel until they resume their connecting flights.
  •  March 22: Kenya has suspended all international flights other than cargo from March 25. Also, all arriving passengers will undergo mandatory quarantine at a government institution at their own cost. 

Internal country shutdowns

  • March 14: Rwanda closes schools, places of worship, large gatherings, and asks people to work from home. 
  • March 15: Kenya’s President announced the Government has closed all schools, suspended official foreign travel, and will encourage all employees to work from home. 
  • March 18: Uganda closes schools, universities and bars, and bans weddings and religious services for a month. 
  • March 21: Rwanda closes its borders to movement of people and cancels international flights, other than cargo ones. It also suspended tourism and research in 3 national parks where gorillas are found.
  • March 21: Nigeria shuts its airports to international flights as coronavirus cases reach 22.  
  • March 21: South Africa closes its airspace to foreign travelers.
  • March 22: Kenya orders a suspension of religious services at all places of worship, closure of bars and bans gatherings including weddings, and birthday parties. Restaurants are to remain open for delivery services and funeral events are restricted to a maximum of 15 mourners.

Flight cancellations/ Airlines reschedulings:

  • March 17: Kenya Airways updates its schedule, reducing London flights to five times a week, Dubai & Johannesburg to once daily, and Johannesburg to two daily. It also suspends flights to Bangkok, Khartoum, Djibouti & Mogadishu. 
  • March 18: Rwanda announces a halt to all commercial passenger flights into/out of the country on March 20 including operations of Rwanda Air for 30 days. 
  • March 19: Kenya Airways suspends flights to Antananarivo, Bamako, Bangui, Blantyre, Brazzaville, Kigali, Kilimanjaro, Luanda, Yaounde/Douala, and Zanzibar. 
  • March 20: Ethiopian Airlines announces 30 routes closures. The list is not revealed till the next day – and the listed countries include Egypt, Lebanon, Somalia, Djibouti, Namibia, Equatorial Guinea, Cameroon, Chad, Madagascar, Angola, Congo, Mali, Senegal, Rwanda, South Africa, Canada, Spain, Belgium, Switzerland, Indonesia, Israel and all US ones. 
  • March 20: South African Airways immediately suspends all operations until the end of May following a government notice prohibiting the embarkation/disembarkation of non-SA crew and passengers. The only flights that will remain will be domestic service between Johannesburg and Cape Town.
  • March 22: Emirates announces cancellation of all passenger flights from March 25 .. but .. 
  • March 22: Turkish Airlines to suspend most of its flights – leaving just a handful of flights to New York, Washington, Addis Ababa, Moscow & Hong Kong (via AlexinAir).
  • March 22: Kenya Airways suspends all international flights. Cargo flights remain, as will passenger services to Mombasa and Kisumu. 

Corporate Restructuring’s: 

  • March 13: Trading was suspended at the Nairobi Securities Exchange. This came following news of the discovery of the first coronavirus case in Kenya and the main share index dropped by over 5%. Past instances when circuit-et breakers have been tripped include in the period of post-election violence in 2008, and in September 2017, on the day that Kenya’s Supreme Court nullified the results of the August 8 presidential election. 
  • March 13: Kenya’s insurance regulator, IRA, communicates that insurance companies will continue to provide their services to policy holders affected or infected with the virus .. but insurance companies say their re-insurers do not cover pandemics such as Coronavirus. 
  • March 16: Ethiopian Airlines restructuring plans include scaling up cost-saving programmes and asking service providers for temporary relief, discounts and waivers. They have also started to renegotiate all contracts, including aircraft leases as well as scaling down offices and reducing staff.
  • March 16: Java adjusts seating and promotes delivery as do other restaurants. But many other restaurants closed. 
  • March 18: It was revealed that The Standard Group plans to lay off 170 workers. 
  • March 18: Churches to restrict attendance numbers.
  • March 18: The African Development Bank cancels all travels and requires staff to work from home. The Bank’s Board of Directors is reviewing the configuration and design of the Bank’s statutory Annual Meetings originally scheduled for May 26-29, 2020 in Abidjan
  • March 18: Kenyan listed companies and licensed investment schemes that were to host annual general meetings (AGM’s) in March, April and May 2020 have been asked to defer them to later dates.
  • March 20: Kenya Airways CEO sends a memo to staff following COVID-19 and writes that in the last 24 hours, nine countries in our Africa network, the UAE and India have announced travel restrictions. So far, we have reduced approximately 65% of our flights, and this is changing by the hour. He announces that instead of layoffs they will ask staff to take salary reduction and paid & unpaid leave. The leadership team and he will take 75% and 80% respectively, while that for other staff will be 25% or 50% depending on the pay grade.
  • To facilitate supermarket shopping home deliveries, Tuskys has partnered with Sendy and Naivas has partnered with Glovo.

Government Adjustments 

  • March 16: The Ministry of Lands closes all land registries for 28 days from March 17. 
  • March 16: Kenya’s Sports & Culture Ministry closes all museums, archives, stadiums, public libraries, and cinemas for 30 days.
  • March 18: Kenya’s National Assembly and Senate both go on a month-long recess. 
  • March 18: Kenyan courts embraced digital filings and rulings of cases. 
  • March 19: Public health campaign to stop the spread is launched. 

Uplifting News

  • March 21: A thread to help those losing jobs their jobs this week and to help match their skills with part-time or remote-work opportunities. 
  • March 22: The first shipment of medical relief equipment offered by the Jack Ma Foundation arrives in Africa for distribution to different countries. The total will be 500,000 test kits and one million masks had been pledged on March 13.

Nairobi investment tips from Genghis for 2020

Genghis Capital has launched its 2020 investment playbook with the theme “harnessing value” after a year in which the Nairobi Securities Exchange (NSE) all share-index had gained 18% compared to a loss of 18% in 2018. 

Top gaining shares in 2019 were led by Sameer Africa which rose 86%, then Equity Group 53%, Longhorn Publishers 46%, KCB 44% and Safaricom 42%. Shares on the bottom side were Kenya Airways which lost 77%, then Uchumi Supermarkets -63% and Mumias Sugar -43%. 

The playbook has a summary of 2019 whose gains were largely due to Safaricom and bank shares, and some of the year’s top deals which included the bank mergers of CBA & NIC and KCB & NBK. Other highlights of the year were the launch of derivative futures and the NSE Ibuka program which has uncovered some promising companies. It also notes the suspension of Mumias which joined Deacons and Athi River Mining as other shares in limbo. 

Outlook for 2020: The report includes a macroeconomic outlook for the country this year during which they expect aggressive domestic borrowing by the government, and the Kenya shilling to range between 100 – 104 against the US dollar. They have also factored in the possibility of another Kenya political referendum happening during 2020. 

Going forward, they expect that bank shares will do well, but that other equities will struggle this year. They look forward to the opportunity that derivatives have brought of diversification with lower trading costs but note that there is a need to have a market-maker to resolve some liquidity difficulties of trading derivatives.

They also note that the main shareholders at Unga and Express may try again to delist their company shares and take advantage of a new rule that reduces the takeover threshold requirement from being approval by 90% of shareholders to just 50%. Genghis also expect that the nationalization of Kenya Airways will be completed in 2020.  

Genghis picks and recommendations:

  • Momentum shares are Equity, EABL, KCB, Safaricom.
  • Income Shares are KCB, Barclays, Co-op Bank, Stanchart, KenGen.
  • Value shares are EABL KenGen, Kenya Re.
  • Buy (expect gains of more than 15%) EABL, Kengen, Kenya Re, KCB, NCBA, and Diamond Trust.
  • Hold (expect changes of between -15% to +14% over the next 12 months) Safaricom, Standard Chartered, Barclays, Equity, Cooperative, Stanbic, and I&M.  
  • Sell Recommendation: N/A

See last year’s picks by Genghis.

EDIT : On June 4, 2020, Genghis Capital announced a partnership with EGM Securities, to offer investors a wider range of alternative asset classes including online currencies, commodities, precious metals, oil, and biotech company stocks.

Kenya Airways 2018 results

Excerpts from the announcement of the Kenya Airways 2018 financial results April 30, 2019 at Ole Sereni Hotel. Nairobi at a breakfast event with investors and media.

Performance: 2018 revenue was Kshs 114 billion (~$1.14 billion), compared to 81 billion in 2017 at the airline, which is in the middle of discussions about taking over the management of the Jomo Kenyatta International Airport (JKIA) under a public-private partnership (PPP).

Chairman Michael Joseph said 2018 had been a challenging year, one highlight of which was the launch of non-stop daily flights New York, but there was a lot media scrutiny on PPP on JKIA that was wrong and excitable. He said that the airline was on the right path and thanked the staff for doing a great job under difficult circumstances.

CEO Sebastian Mikosz said this was the second year of growth in passengers and cargo and a narrowed loss. The difference to 2017 (which was abbreviated to 9 months as the airline changed its financial year-end to match IATA and its financial partners) was stark but the CEO went out of his way to compare unofficial twelve month numbers for 2017 to highlight that the airline had increased income, and flown more passengers despite the smaller fleet in 2018. They had 13,258 daily customers (up from 12,484),  a cabin factor of 76% and on-time performance 79%.

They earned Kshs 95 billion from flying 4.84 million passengers in 2018, Kshs 8.5 billion from cargo 8.5 billion and earned Kshs 10 billion from other business including ground handling and repairs and maintenance and training,. While the revenue covered their fleet ownership, fuel and staff costs, they ended with an operating loss of Kshs 683 million and, an overall loss before tax of Kshs 7.5 billion ($75 million).

Fuel: Accounts for 40% of costs, and as prices went up 30% in 2018, it remains one of the biggest challenges to profitability. As such they are going back to fuel hedging as a risk minimization strategy.

Fleet: They are getting back two Boeing 787’s from Oman Air but have extended an ongoing lease with Turkish to retain three Boeing 777-300’s which are simply too large to operate given the current loads and will introduce a complexity  that is not desirable now.

Routes and Partnerships 
  • The New York direct flight route had flown 15,000 passengers as of December 31 2018. The load factor is 64% and CEO said that there was nothing lucrative about NYC but it helped serve the Africa Market with 5 weekly flights which they will adjust back to being daily flights in the summer. The non-stop route offers the fastest route between New York and Indian Ocean destinations countries like Mauritius
  • The Air-France-KLM joint venture is still the biggest part of their business. They have now added one with Delta enabling KQ to sell flights to Delta destination cities beyond New York.
  • UN: With the addition of Geneva (and Rime) in June, they will now fly to all the main UN cities – Geneva, Mogadishu, Paris, New York – from Nairobi, completing their UN network.
  • JamboJet: They are trying to pushing to get their Jambojet subsidiary IOSA-certified so they can codeshare on more local routes.

African Aviation: The results presentation showed comparisons to Rwandair, Ethiopian, Turkish, Ethiopian and Emirates airlines, but Mikosz said that KQ was the only airline interested in growing the Nairobi hub. The CEO cautioned that while in 2010, Ethiopian was the same size as KQ, today it was three times bigger, and that was due to support systems, Also that Rwandair, while considered small today, will catch KQ in five years unless KQ grows its hub in this competitive environment.

PPP: The fate of the public-private partnership proposal for the airline to manage JKIA is still with the Privatization Commission who turned it over to Parliament for public hearings that were stormy at times and led to a lot of inaccuracies. The CEO and Chairman said it was not necessary for the growth plan that the company had presented to shareholders during their 2017 restructuring, but it was one which would accelerate its rate by levelling the playing field with its continental peers.

Embraer Woos Africa

Fresh from the Farnborough air show, Embraer embarked on an African tour to showcase their planes in what they see as an under-served air market on the African continent.

The company flew an Embraer E190 E2 jet with a unique shark-nose look (nick-named “profit-hunter”) to Algiers (home of Air Algerie)  and Casablanca (Royal Air Maroc), then on to Accra and NairobiKenya Airways (KQ), which is the largest Embraer E-jet operator in Africa and also hosts one of the few approved E190 services centres in Africa, staged an event that featured local aviation officials, KQ customers and the Brazilian Ambassador to Kenya that ended with demonstration flight that over Mt. Kilimanjaro, Africa’s highest point. 

Embraer were keen to showcase the quiet-ness and efficiency of the E190 which they bill as the best single-aisle aircraft. They view Africa as an under-served aviation market in which 95% of flights have less than 150 passengers and 61% of routes have less than one flight per day, with many potential new routes being 4-5 hour flights, that are beyond the operational reach of propeller planes and with their E-jets as just the right size for African airlines. 

Kenya Airways has been flying Embraer’s since 2006. They stared with the smaller E170 and upgraded to the E190’s which now form a third of their lean fleet; they have 15 of them – 10 are owned, 5 on lease  – and they seat 12 passengers in business class and 84 in economy. But it is unlikely that Kenya Airways that is emerging from a long restructuring process will be buying any more planes soon, but other things are happening and at Farnborough, Embraer and KQ announced a new spare parts supply deal.

After Nairobi, the E2 jet flew on to Mauritius where Air Mauritius is tipped to be a potential customer and they planned to continue on to South Africa where Embraer has a training centre and a regional office for Middle-East and Africa.