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‘Aviation sector needs strong support’

In Victoria Falls on May 1, the Zimbabwe Independent assistant editor Brezhnev Malaba (BM) had an exclusive interview with Mbuvi Ngunze (MN), the Harvard-trained chief executive officer of Kenya Airways, one of Africa’s “top four” airlines. He was launching a direct flight connecting Nairobi, Victoria Falls and Cape Town. With Air Zimbabwe continuing to crumble under a US$330 million debt burden, Kenya Airways becomes the second major carrier to venture into the potentially lucrative Victoria Falls tourism market within a month, a route it will ply thrice weekly with six frequencies. Ngunze revealed that the Kenyan company, which has incurred huge losses for the past four years following a botched expansion plan, is saddled with a US$2 billion debt. He expressed confidence that an ongoing “financial restructuring” exercise he’s spearheading is beginning to turnaround the fortunes of Kenya Airways. Remarkably, three days after the interview, the Kenya Airways board dropped a bombshell: the airline announced the appointment of a new CE, Sebastian Mikosz, who is renowned in aviation circles for turning around the fortunes of Polish flag carrier Lot Airlines. In this interview, Ngunze speaks about the “tough” aviation industry and sheds light on controversies that have dogged Kenya Airways during his two years at the helm of the loss-making firm.

Kenya Airways outgoing CE Mbuvi Ngunze
Kenya Airways outgoing CE Mbuvi Ngunze

BM: What motivated you to enter the turbulent Zimbabwean market?

MN: We’ve been flying into Zimbabwe for many years and that’s just the mark of what we are as an airline. We fly into many places in Africa where there may be challenges of one sort or the other, but the thing about it is that when you have partners in the government who understand the importance of facilitating that process, then we’re always encouraged. As I look towards the expansion, today we fly 21 times a week into Harare, it was very natural for us to fly to Vic Falls and connect to Cape Town because the infrastructure in Vic Falls has been improved. Last year, the government built a state-of-the art airport in Vic Falls and Vic Falls is a big destination for tourism into this part of the world, so it was very natural in terms of choice.

BM: You operate 34 aircraft. Are you expanding your fleet anytime soon?

MN: We went through a major fleet expansion between 2012 and 2015, where we did not only do expansion, but fleet modernisation. Today we feel we’re at a critical size in terms of fleet, we have no major movement in terms of fleet, what we’re doing is just using the fleet we have.

BM: The past four years have been difficult for Kenya Airways, as shown by the heavy financial losses. How far have you gone in turning the airline around in terms of profitability?

MN: We’re making strides. The turnaround of an airline is not always easy, it takes time. But what we’ve been clear about over the last year-and-a-half is that we must make sure that we can focus on the operational turnaround and the proof point is that by half-year we showed an operating profit margin, we showed an improvement in terms of passenger numbers carried.

BM: How much was the profit?

MN: We are at just about US$10 million for the half-year to September 30 2016, which was our financial half-year. We will be releasing our results in another month or so and that trend should continue.

We saw passenger numbers increase year-on-year by 9%; we saw intra-Africa traffic increase by 12% and we saw our fleet utilisation improving. It shows that the operational turnaround is taking root.

The financial restructuring is what we’re working on right now. We need to, overall, restructure our balance sheet to reduce the overall debt and improve liquidity, and we are making strides in that regard.

BM: How much is the airline’s debt?

MN: We have an overall debt structure of close to US$2 billion and we’ve been looking at how to structure that debt.

BM: Your tenure as CE, how secure is it, following reports that Kenya Airways is looking to replace you. The company is hunting for a new CE. Are you staying on?

MN: Actually, I’m the one who said I was going to leave. There is never a perfect time for a CE to leave, but what I feel clearly is that the operational restructuring is well-anchored today.

The financial restructuring will be completed soon, so at that point I would have done what was needed in terms of the turnaround. I think then I can allow somebody else to continue with the normalisation of the business.

BM: When do you think you’ll leave the company, this year or next year?

MN: It will be this year.

BM: Africa has seen the rapid growth of budget airlines in recent years. What role are they playing and are they posing a threat to big carriers like Kenya Airways?

MN: I think we are still a long way away for budget airlines to make a mark. Budget airlines require a number of fundamentals: density of routes in terms of the number of people; they require also the cost structuring of airports to be different, and I think we’re still a long way in seeing the impact of budget airlines.

We (Kenya Airways) also have a budget airline, Jambojet, which basically is also helping us to densify for example our own traffic flows in Kenya. But it will still be some time before we see a significant impact.

BM: Kenya Airways was plunged into controversy after the company sold off two Boeing 737 aircraft for US$2,1 million soon after buying the planes for more than US$20 million. What really happened in that transaction?

MN: I think that was total mis-reporting. Unfortunately, I think when people do not read between all the lines, you end up having stories like that. But it never materialised into anything.

BM: Is that so? Are you saying the aircraft were not sold?

MN: No, we sold the aircraft but those were not the facts. The figures were totally misquoted. Also, when you buy an aircraft, you know, five or six years later the value is very different because there is a depreciation.

BM: What is the future of Kenya Airways? Will you open more routes?

MN: The point that we’ve been emphasising for years really is consolidating Africa, because Africa is our route so we’re increasing frequencies into Africa. That’s an important part of our stable. The second part is looking at how we can work into the longer routes, internationally, with the partners that we have, to make sure we can bring traffic into Africa. My main focus has been making sure that we are stable and strong operationally, keeping a niche market in Africa.

BM: You’re increasing your flights into Zimbabwe from the current 21 weekly frequencies into Harare. The national airline, Air Zimbabwe, has more or less collapsed due to massive debt, mismanagement and corruption. What would be the best way of reviving Air Zimbabwe?

MN: I really don’t know Air Zimbabwe well enough. What I know is that the aviation industry is tough, it’s difficult, requires a lot of patience and it requires support from all the different stakeholders involved in the process.

BM: Is privatisation the answer for state-owned airlines that are struggling in Africa?

MN: There are good examples of privatised airlines and there are bad examples of privatised airlines. There are good examples of state-run companies and bad examples of state-run companies. So privatisation is not necessarily the formula. This industry requires sensitivity, it requires a sense in which you objectively let the operation run, but you give it strong support.

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