Kenya Airways (KQ, Nairobi Jomo Kenyatta) aims to convert loans into shares to reduce its debt and increase equity, paving the way for a strategic investor to come on board by December or early next year, according to CEO Allan Kilavuka.

He told Kenya's Business Daily Africa that the airline is banking on its top shareholders to back the debt-to-equity swap - the second in under seven years - to address its negative equity position of KES123.6 billion shillings (USD960 million) due to high debts. "We have some large shareholders, and they might want to convert some of their debt to equity," he said.

"We want to remove any potential risk of not paying loans as and when they fall due. We want to deplete our debt stock quite significantly, and when the new investor comes, they will, of course, increase equity since part of their money will be used to pay down debt," he explained.

Following a previous debt-to-equity swap in 2017, the government's shareholding increased from 29.8% to 48.9%, while 11 banks converted USD167.2 million worth of debt into a 38.1% stake through a special-purpose vehicle. Consequently, Air France-KLM's stake was diluted from 26.7% to 7.8%.

Another debt swap would further dilute the minority shareholders' stakes. About 75,000 individual shareholders currently hold a combined 2.8% stake, with an additional 2.4% held through an employee share ownership plan.

According to Kilavuka, Kenya Airways' debt-to-equity ratio is 13:1, and the airline aims to improve it to a more manageable 2:1. This ratio, which compares total liabilities to shareholder equity, helps assess the company's ability to handle debt and meet financial obligations.

"We believe that the debt-to-equity ratio shouldn't exceed 2:1 and that, progressively, we should be in line with best business practices, and moving to 2:1 would be fine. Part of that could be our large shareholders converting their debt to equity to help in this rebalancing," he said.

Kenya Airways has not disclosed the current amount owed to the banks, but analysts estimate that it remains similar to the USD217.2 million owed after the 2017 debt-to-equity swap. Additionally, the airline owes the government tens of billions of shillings.

First post-tax profit since 2013

Kenya Airways reported its first profit after tax since 2013 for the first half of the financial year ending June 30, 2024, totalling KES513 million (USD4 million), a turnaround from the KES21.7 billion (USD170 million) loss for the same period last year. This success is attributed to its turnaround plan, Project Kifaru, which focuses on customer service, operational efficiency, financial discipline, innovation, and sustainability. Highlights from the period include:

  • a 10% increase in passenger numbers to 2.54 million;
  • a 16% rise in capacity and 14% improvement in revenue passenger kilometres (RPKs);
  • total revenue grew by 22% to KES91 billion (USD707 million); and
  • operating costs also rose 22%, but overheads were cut by the same percentage, reflecting more effective cost management.