Precision Air Services Plc is looking for a new partner to address a financial crunch after Kenya Airways delayed to inject $10 million into the operations of the Tanzanian carrier.
Precision Air chairman Michael Shirima said the airline had appointed a Dubai consultant to arrange for the injection of at least $40 million by an investor in exchange for shareholding. This would see the dilution of the 41.15 per cent stake Kenya Airways holds in the airline.
“We need between $40 million and $75 million from an investor, we will spend that money to pay some of our debts and inject the other into our operations,” he said.
Mr Shirima added that the existing shareholders had agreed to the cash for shares deal. “The investor’s financial capacity will be the determinant by the number of shares we dispose of,” Mr Shirima said.
In July this year, Kenya Airways pledged $10 million to consolidate its ownership. Mr Shirima, said disbursement of the money had delayed despite Precision Air meeting some of the conditions for the rescue.
Under the terms of the KQ rescue, Precision Air was to sell and lease back five of its remaining nine aircraft, retrench more than one fifth of its staff, outsource some functions and draw up a plan to reduce debts while improving cash flow.
Mr Shirima said Kenya Airways was “resolving other internal issues before payment can be made.”
Though he did not disclose the internal issues, Kenya Airways is in transition with long-serving chief executive officer Titus Naikuni set to leave at the end of this month. He resigned last month enabling his successor, chief operating officer Mbuvi Ngunze, to enter the cockpit next month instead of December as had been earlier planned.
In June, Kenya Airways shocked the market with a worse than expected $92 million loss after tax for the year ending March 31, 2013, raising questions whether it is in a position to finance the bailout of Precision Air.
The reversal from a net profit of $18 million for the previous year reflected the economic slowdown in Europe, terror related incidents in Kenya and uncertainties over upcoming general elections in Africa.
The airline’s share price has dipped 30 per cent since the beginning of the year from Ksh13.25 (15 US cents) to Ksh9.25 (10 US cents) at the end of September.
The airline was trading at an average price of Ksh9.30 (10 US cents on Thursday, against a one year high of Ksh14.70 (16 US cents and a low of Ksh8.30 (9 US cents).
Mr Shirima said raising funds from Europe was one of the options while waiting for the KQ cash come to come through.
“It is not a closed door, as we have been meeting several times and when their issues are sorted out we believe they will come to our rescue,” he said.
The Dubai consultant, who Mr Shirima said could not be named for confidentiality reasons, has instructions to conclude the financing quickly and also to arrange the sale and leaseback of the five ATR aircraft.
“Because he [the consultant] knows the urgency of the matter he will work on it urgently; we need the money even tomorrow, “ he said, adding that the consultant will also determine the price of aircraft.
“In a bid to raise funds, we have decided to sell our aircrafts and then the buyer will lease to us to continue with our business,” he said. It is estimated that the five aircraft — ATR-500 and ATR-600 —would release $80 million for the company’s operation.
Under the agreement, the consultant will seek an interested company to inject between $40 million — $75 million in “any form which is not a loan. It can be shareholding, quasi-shareholding or mezzanine funding.”
The injection of the money will attract dilution of shares between KQ and Mr Shirima, which according to agreed arrangements each shareholder will have to surrender part of his shares to the new shareholder.
The injection by KQ would have kept Precision Air’s turnaround strategy on course. A second raid on the stock market was discouraged by the fact that Precision only raised half of its $33 million target in an initial public offering at the Dar es Salaam Stock Exchange in 2011.
During financial year 2013/14, there was a minimal fluctuation in the company’s share price listed at Dar es Salaam bourse. At the close of the financial year, the shares traded at TZS 460 per share (US26 Cents), compared to TZS 475(US27 Cents per share at the end of the previous financial year.
Precision Air incurred a net loss of TSh12.06 billion ($6.9million) for the year ended 31 March 2014. The net loss stood at TSh30.15 billion ($17.4 million) at the close of financial year 2013 and, as at that date, the Group’s current liabilities exceeded its current assets by TSh99.76 billion($58 million).
Azda Nkullo the corporate communication manager said that Precision Air is restricting their routes to improve efficiency and productivity. “Our long term goal is to build a regional network covering East and central Africa including the Indian Ocean Islands,” she said.
The company has introduced new direct domestic flights from Dar es Salaam to Bukoba and Kigoma. Kigoma would receive three flights a week while Bukoba would be served four times a week.
She said that the company had plans to modernise its fleet in anticipation of increased competition from new carriers using Dar es salaam as a hub to the Central African region.
The East African
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