KQ stock plummets fuelled by financial, management woes

KQ stock plummets fuelled by financial, management woes
JAMES ANYANZWA

By JAMES ANYANZWA
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Kenya Airways stock on the Nairobi Securities Exchange (NSE) has fallen 71 per cent in the past 12 months as both financial and management crisis weigh down the 42-year-old carrier whose revival now hinges on a planned takeover by the government.

Last week, the airline’s share price on the Nairobi bourse fell to as low as Ksh2.39 ($0.02) per share on September 18 from Ksh8.30 ($0.08) per share in the same period last year as the market reacted to news of the suspension of the chief financial officer Hellen Mathuka.

Further instability is expected when CEO Sebastian Mikosz quits at the end of the year after declining to extend his three-year contract, which expires on December 31. Earlier in July, chief operating officer Jan De Vegt, who was seconded by partner KLM, resigned after serving for three years. The move pointed to a deteriorating relationship between the two airlines.

A cross-section of analysts polled by The EastAfrican said investors are desperate to offload the airline’s shares owing to the uncertainty surrounding its revival while its planned takeover by the government does not guarantee premium to their share sell.

“KQ will take some time to recover. I would imagine most shareholders are not expecting premiums during the takeover and they would prefer selling the shares at the prevailing market price,” said Eric Musau, head of research at Standard Investment Bank.

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“The share price has gone down but it’s a matter of demand and supply,” he added.

Eric Munywoki, an independent financial analyst said KQ’s management has to quickly rethink the airline’s business model to survive increasing competition from regional and Middle East carriers such as Emirates, Qatar and Etihad. Ethiopian and Rwandan airlines have eaten into KQ’s market share while Uganda and Tanzania are revamping their national carriers.

“In the short-term we don’t expect the share price to improve because the company’s performance has not been strong over the past three years,” said Mr Munywoki.

Over the past six years, the airline’s stock has declined by over 74 per cent to Ksh2.39 ($0.02) per share from Ksh9.40 ($0.09) per share while the volume of shares traded have declined by 96 per cent to 24,500 from 680,000 in the same period, according to data from the NSE.

The airline is 48.9 per cent owned by the Kenya government and a group of 11 local banks which own 38.1 per cent of the shares. Other shareholders include KLM Royal Dutch Airline (7.8 per cent), employees (2.4 per cent) and other shareholders at 2.8 per cent.

However, Kenya’s parliament has approved the nationalisation of the loss-making airline as a way of saving the national carrier from bankruptcy. The takeover is expected to start by the end of this year.

Under the plan, the government will also create a special purpose vehicle — Aviation Holding Company (AHC) — to manage the country’s aviation sector.

The AHC will have four subsidiaries — Kenya Airways, Kenya Airports Authority (KAA), Jomo Kenyatta International Airport (JKIA) and a centralised Aviation Services College — which will be run independently

However, some economists say the government’s move to take over the running of KQ is likely to worsen the airline’s financial troubles largely brought about by years of mismanagement and bad business ethics.

“The government has never been good at business and this is demonstrated by the collapse of a number of state-owned enterprises. Additionally, KQ is not a national strategic asset and there is no evidence that nationalising it, which will mean taxpayers assume its debts, will improve the company’s financial position,” said George Bodo, a director at Callstreet Investor Relations.

“Nationalisation of the airline should be the last resort. It should not be something we rush into because it makes the company even more vulnerable to mismanagement and inefficiencies. It should be introduced as a temporary measure,” said Joy Kiiru, a senior lecturer at the University of Nairobi School of Economics.

Currently, KQ is facing difficulties facing off its competitors such as Ethiopian Airlines, RwandAir, Emirates, Qatar and Etihad, which are all 100 per cent state-owned, subsidised and have engaged in aggressive growth strategies focused on volume and market share.

The airline’s market share loss to rival carriers has partly been blamed on expensive ticketing and unreliability, characterised by massive cancellations and rescheduling of flights.

Last week, the airline which was on collision course with its pilots for hiring them on contract basis for the Boeing 737, suspended its flights to Libreville (Gabon) and Cotonou (Benin) effective October 14, arguing the move is in line with its strategy to align its network worldwide.

KQ increased its losses for the year 2018 to Ksh7.5 billion ($75 million) compared with Ksh6.4 billion ($64 million) in 2017. It made a net loss of Ksh8.5 billion ($85 million) in the half year ended June 30 this year, more than double the net loss of Ksh4 billion ($40 million) in the same period last year. KQ has been run down by mounting debts and mismanagement. In 2017, parliament approved a sovereign guarantee of Ksh75 billion ($750 million) for the airline’s creditors.

TURBULENT TIMES

A cross-section of analysts polled by The EastAfrican said investors are desperate to offload the airline’s shares owing to the uncertainty surrounding its revival while its planned takeover by the government does not guarantee premium to their share sell.

Over the past six years, the airline’s stock has declined by over 74 per cent to Ksh2.39 ($0.02) per share from Ksh9.40 ($0.09) per share while the volume of shares traded have declined by 96 per cent to 24,500 from 680,000 in the same period, according to data from the NSE.

KQ is facing difficulties facing off its competitors such as Ethiopian Airlines, RwandAir, Emirates, Qatar and Etihad, which are all 100 per cent state-owned, subsidised and have engaged in aggressive growth strategies focused on volume and market share.

The airline’s market share loss to rival carriers has partly been blamed on expensive ticketing and unreliability, characterised by massive cancellations and rescheduling of flights.

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