KQ and Sudanese officials at the inauguration of the Juba route last year. The airline says it is monitoring the situation in Iceland. JAMES NJUGUNA (NAIROBi)
Kenya Airways is bracing for the looming disruptions in flights to Europe following the latest volcanic ash eruption in Iceland.
The KQ management said it was watching the situation but said all its European flights remained un-affected as at yesterday noon (see related story on Page 12).
“We have not yet cancelled any flights but we are monitoring the situation,” KQ corporate communications manager Chris Karanja told the Business Daily Tuesday.
A similar volcanic eruption last year triggered travel chaos, closing down almost the entire European airspace.
The looming crisis comes a week before the listed national carrier’s expected release of its annual results in a year that was characterised by a steep surge in fuel prices and a recovery of the global economy.
Analysts say investors will expect KQ to outline how the airline plans to make money for its fleet expansion plan.
In April KQ finalised a deal with Boeing to deliver nine 787-8 Dreamliners which would bring the airline’s fleet to 41 planes.
The airline’s management said it needs to raise additional capital for this strategic expansion and would give more details as the plans materialise. Analysts say the national carrier is likely to announce details of an expected rights issue on Thursday next week.
Choosing a rights issue over debt, which is generally cheaper, is seen as a way of easing the airline’s immediate financing costs.
“They are a bit over-leveraged,” said analysts at CFC Stanbic Financial Services.
Half year results for the year ending September 30 indicate that KQ had total current liabilities of Sh23.39 billion against total current assets of Sh21.66 billion.
The preferable position is to have current assets exceeding liabilities. KQ needs a huge working capital outlay which has raised analysts’ curiosity on how management plans to raise the funding.
“Sh20 billion is substantial, that is more than its market capitalisation,” said the CFC analysts.
At Sh40.25, the firm’s share price at yesterday’s close of market, KQ’s market capitalisation stood at Sh18.58 billion.
The capital is however necessary since the money will be re-invested in the business which is the surest path to profitability in the industry, said George Bodo, a research analyst at Genghis Capital.
“The 62.58 per cent growth potential in earnings over the next two years would be achieved through consolidation of gains expected from the recent routes expansion,” says a research note by Sterling Investment Bank.
The national carrier is expected to add 10 new routes in Africa over the next three years.
So far analysts expect that half year results and the upturn of the global economy will play to the airline’s advantage. An airline’s profitability generally grows or falls in tandem with the global economy, said Mr Bodo.
Regions where the national operator has presence are on an economic recovery path and it is expected that revenues from these regions should grow the firm’s bottom line.
Profit after tax for the half year ended 30 September 2010 was Sh1.436 billion, a 66.9 per cent increase from Sh860 million posted over a similar period in 2009 driven by the global upturn in traffic.
In the last quarter ended March 31 2011, a key performance measure such as passenger traffic grew to 829,263, a 7.3 per cent growth over a similar period in 2010.
Since December, however, the last quarter for the airline’s financial calendar, fuel prices have risen, fanned by political unrest that rocked North Africa and the Middle East.
The shilling has also weakened to historic levels; all factors having an impact on the bottom line.
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