McKinsey wants to turn around Kenya Airways

Global consulting giant McKinsey’s proposals, how to turn the financial fortunes of Kenya Airways around, may hold the key for the rise of the airline’s share values, going by information received

Global consulting giant McKinsey’s proposals, how to turn the financial fortunes of Kenya Airways around, may hold the key for the rise of the airline’s share values, going by information received from Nairobi. A 24-point plan addresses a wide range of options on how to save as much as US$346 million over the next 2 years, most crucial being the restructuring of the airline’s short- and medium-term debt. Sharper practice vis-a-vis fuel hedging, if not dropping these contracts altogether, is also high on that list as this line item has in the past contributed to the accumulated losses.

CEO Mbuvi Ngunze, during a meeting last week on the sidelines of the just-ended Africa Travel Association’s 40th Annual Congress, had confirmed that major decisions were imminent, and it is now confirmed that by the end of November, the McKinsey plan will be progressively implemented. Mbuvi Ngunze, while not putting a timeframe on the sale of the airline’s B777-200 fleet, did confirm that negotiations were at an advanced stage, and proceeds could, by this correspondent’s best estimates, reach between US$150 and 200, a fair price considering the present glut in the pre-owned large jet market.

Still causing major concerns are the fluctuations of the Kenya shilling versus major currencies like the US dollar, however, an item beyond the airline’s control, as are continuously high interest rates in the domestic market, in part caused due to the Kenyan government’s high level of borrowing.

Many of the ATA delegates who had flown on Kenya Airways from London or Amsterdam to Nairobi were complimentary of the service levels, on the ground and in the air, and in particular feedback from departing ATA members about the check-in through the new Terminal 1A at Jomo Kenyatta International Airport gave the airline the thumbs up.

Projected additional savings and productivity increases, as outlined in the McKinsey report, will also depend on the goodwill of Kenya’s aviation unions. Those have in the past been seen as a major challenge towards sustaining and promoting a financial turnaround, unlike for one of Kenya Airway’s major competitors where militant unionism is literally unheard of and where staff costs are subsequently significantly lower. In particular, the Kenyan pilots union has shown glaring examples of incompetence when they demanded that Kenya Airways’ low-cost subsidiary JamboJet use “in-house pilots” for the operation of the two wetleased Bombardier Q400NextGens, an aircraft type for which none of Kenya Airway’s and Jambojet’s pilots hold a type rating.

The airline in a low-key ceremony also received the last two of their order of overall nine Boeing B787-9 Dreamliners and now expects the delivery of another Boeing B737-800NG with the latest cabin product – which includes Boeing’s SkyInterior outfitting – before the end of 2015.

The shareholder briefing on Thursday last week at the InterContinental Hotel outlined some of the measures which will be taken and it is expected that the key institutional shareholders, among them the Kenyan government and KLM, the Royal Dutch Airline, will support the proposals.

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Linda Hohnholz

Editor in chief for eTurboNews based in the eTN HQ.

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