This week, Kenya Airways has made its return to the Nairobi Securities Exchange, resulting in a favorable response from investors.
Trading resumed on Monday following a suspension of nearly four and a half years, with shares of the national airline initially rising to Sh6 (4.6 US cents).
By the close of trading on Wednesday, the shares were priced at Sh4.76 (3.7 US cents) each, leading to a total market capitalization for the airline of Sh25.21 billion ($193.67m).
The initial suspension of trading took place in July 2020 when a government proposal emerged that aimed to nationalize the airline, which was struggling with significant debt amid the downturn in global air travel triggered by the Covid-19 pandemic. At that time, shares were valued at Sh3.83 (3 US cents).
However, the nationalization proposal was withdrawn as the airline began to exhibit signs of recovery. In 2022, a shift in government leadership led to substantial policy changes, with President William Ruto opting for privatization over nationalization. These developments, along with the airline’s recent return to profitability, have enabled its relisting on the exchange this week.
“The trading halt on Kenya Airways PLC shares was lifted due to the company’s recent positive performance, which included a profitable quarter and the withdrawal of the National Aviation Management Bill 2020,” the NSE announced on Monday.
Profitability boosts sentiment
Analysts attribute the positive outlook for Kenya Airways’ stock to its recent financial performance, marking a turnaround after a long period of losses and significant debt.
For the first half of the financial year ending June 30, 2024, the airline reported a profit after tax of Sh513m ($3.96m) — its first profit since 2013, after accounting for taxes and debt obligations.
During this period, the airline’s revenue grew by 22% to Sh9bn ($69.5m), driven by a 10% increase in passenger numbers, totaling 2.54 million. The airline has also executed a comprehensive turnaround strategy focused on reducing costs, increasing capacity, and reorganizing finances, leading to a 22% reduction in overhead costs and a substantial decrease in debt, favorably impacting its net income.
“We have focused on fortifying our core operations, enhancing customer service, and exploring new growth opportunities. This performance positions us strongly to address challenges within the aviation sector and prepare for future expansion,” commented Allan Kilavuka, CEO of Kenya Airways, this past August.
Restructuring debts
Kenya Airways has grappled with financial hurdles for over a decade, worsened significantly in 2017 when the airline secured an $841.6m loan from the Export-Import Bank of the United States (EXIM). Of this amount, $525m was government-guaranteed and aimed at financing the acquisition of seven planes and a new engine as part of an expansion effort.
However, the strengthening of the dollar against the shilling in the following years led to dramatic increases in financing costs for this dollar-denominated loan, further plunging the airline into debt.
In 2022, the Kenyan government intervened by assuming the debt, converting it to local currency, and restructuring repayment terms, providing critical relief to the airline.
After converting debt into equity, local commercial banks now hold approximately 38.1% of the airline. The Kenyan government possesses the largest share at 48.9%, while KLM Royal Dutch Airlines owns 7.8%, and minority investors make up 2.8%.
Search for strategic investor
While the decrease in debt and a focus on efficiency have allowed Kenya Airways to regain profitability, analysts warn investors to remain cautious regarding the risks tied to the airline’s negative book value, which indicates that its liabilities exceed its assets.
“The improved turnaround of KQ (Kenya Airways) sets the stage for investors to anticipate recovery performance in the future. However, the primary challenge for the airline may be its negative book value, which could hinder its positive stock movements,” remarked Ronny Chokaa, an analyst at Capital A Investment Bank, as he shared insights with The Africa Report.
Kenya Airways last reported a negative book value of Sh123.6bn ($954m), reflecting the extensive effects of years of consecutive losses on its financial health.
For a significant period, the airline has actively sought a strategic investor to aid in its financial recovery, with the government demonstrating a willingness to cede ownership to a private entity capable of restoring the airline’s fortunes. Nevertheless, despite previous management assertions that they were in the “final stages” of securing a strategic investor, there has yet to be any announcement regarding such a partnership.
