Precision seeks KQ bailout as Dar govt snubs airline

Kenya Airways (KQ) and Tanzania’s Precision Air are in talks over a deal that could see the Nairobi-based carrier raise its stake in the latter, by injecting up to $30 million into it.

The move comes after similar discussions between the Tanzanian government and Precision Air, in which the former was expected to inject $30 million into the struggling company, flopped.

Precision chairman Michael Shirima told The EastAfrican that his airline had approached KQ, which owns 41.23 per cent of the airline, for financing, as the Dar es Salaam-based airline seeks ways to shore up its eroded cash position.

“KQ was waiting for the government’s decision…. when the government gave us its final decision on the matter, KQ came up with the idea to increase its stake, over which we are still in discussion. Our aim is it get between $20 million and $30 million through equity,” said Mr Shirima.

Late last year, Ernst and Young, Precision’s auditors, raised concerns over the viability of the airline in the light of surging debts, saying it must move fast to secure financing if it is to remain afloat.

The company’s audit report painted a gloomy picture of the loss-making firm, saying its liabilities had exceeded its assets by Tsh83.14 billion ($53 million).

Also, for several years, it has not remitted its statutory deductions and indirect taxes to the government, amounting to Tsh19 billion ($12 million) as of March 2013, notes the report prepared by Ernst & Young, and tabled at the annual general meeting last November.

“These conditions cast significant doubt on the company’s ability to forge ahead,” said the auditors.

The airline has been facing cash flow challenges occasioned by an overambitious expansion plan that saw it add new aircraft. This has hurt its competitiveness, especially as it struggled to stave off competition from budget airline Fastjet, whose relatively affordable fares have had a big impact on the local market.

In 2011, KQ reduced its ownership in Precision from 49 per cent to 41.23 per cent through an initial public offerings (IPO) on the Dar es Salaam Securities Exchange.

Over the past few years, a mix of fleet expansion and loss-making also affected KQ’s cash flow, and though the carrier raised Ksh14.6 billion ($169 million) through a rights issue, it is expected it will use a good proportion of it as down payment for the new 787 Dreamliners that it is expecting starting March and into 2016.

“KQ experienced problems last year, but currently it has a healthy cash flow, and so we are optimistic it will clinch the deal,” said Mr Shirima.

Additional investors
Precision Air said apart from KQ, it was also talking to other investors, including other airlines, keen on taking up a stake in the airline.
SOURCE