Kenya Airways Analytical Note-Final Draft

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Bloomberg: GNCP <GO>
Think Business Awards 2015
Winner of 8 Awards at the 2015 Think
Business Awards
www.genghis-capital.com
JANUARY 2016
Kenya Airways Ltd Analytical Note – Have the Wings Fallen off Yet
Genghis Capital Research
Research Analyst:
Mercyline Gatebi - Direct Line: +2540 729 250003 – Email: mgatebi@genghis-capital.com
Trading queries:
Wanjiru Gichuru- Direct Line: +2540202774789- Email: wgichuru@genghis-capital.com
Website: www.genghis-capital.com
Twitter handle: @genghiscapital
Linked In: Genghis Capital Investment Bank

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Source: Annual Reports, Bloomberg
Share Price Performance-52 Week
Source: NSE
INVESTMENT SUMMARY:
We initiate our report with a SPECULATE recommendation, based
on the price volatility of the stock and its high liquidity. Short–term
investors are poised to gain marginal returns on the stock as the
company’s management works round the clock to reverse its losses.
Based on the turmoil facing the airline, we sought to conduct some
analytical tests on the company’s financial strength, transparency in
accounting techniques and bankruptcy; with a view of guiding the
investor on where the company stands at the moment. The following
are the highlights of the tests performed:
 The ROE has declined to -231.23% (FY15) from -11.38% (FY14),
pointing out to a negative signal as the company is
drastically wiping out the shareholders’ value on the stock.
 Based on the Altman’s z-score, the firm gave signs of
going bankrupt from 2013, when the coefficient of the Z-
score went below 1.88 (global benchmark). In 2015, the
carrier was close to being declared bankrupt, with a Z-
score coefficient of -0.06.
 From the Beneish M-score analysis, we concluded it was
likely that the firm may have been engaging in creative
accounting techniques, both in 2014 and 2015, as its M>-2.22
(global benchmark).
 Based on the Piotroski F-score, results obtained indicated
that Kenya Airways has an average strength on its financial
position for both 2014 and 2015.
The key risks facing the company are poor corporate governance,
competition from Gulf and Asia airlines, fuel prices volatility and
foreign exchange risks which have exacerbated the adverse situation
at the airline. We also questioned the benefit drawn from the
codeshare agreements between KQ and KLM. Worth-noting is that
Europe’s contribution (which forms the majority basis for their
partnership) to the total revenues has been on a downward spiral
from 26% in FY12 to 22% in FY 15.
Based on the poor contributions from other regions due to intense
competition, we are of the opinion that the airline should focus on
regaining their altitude as the pride of Africa whilst also exploiting
other growing routes with lesser competition.
Source: Company data, Genghis Research
Rating SPECULATE
Bloomberg Ticker KNAL KN
Current Price(KES) 20-Jan-16 4.80
Market Capitalisation (USD Mn) 71.6
Free Float (%) 46.5%
Common Shares Outstanding (Mns) 1,497
Share Price Statistics
LTM High (KES) 20-Jan-16 11.50
LTM Low (KES) 20-Jan-16 4.05
Year End March
BVPS -4.02
T12M EPS (KES) -18.22
Est EPS -12.75
Beta 0.91
Share Price Performance
YTD 8.9%
LTM -46.7%
Market Performance (NASI)
YTD -3.2%
40
50
60
70
80
90
100
110
120
16/01/2015 16/04/2015 16/07/2015 16/10/2015 16/01/2016
KNAL KN Equity KNSMIDX Index
Investment Outlook (Year End - Mar) FY13A FY14A FY15A FY16E FY17F FY18F
Earnings Per Share(KES) 6.35 -2.25 -17.21 -12.75 -11.30 -9.62
Dividend Per Share(KES) 0.00 0.00 0.00 0.00 0.00 0.00
Free Cashflow Yield - - - -137.6% -129.2% -134.7%
EV/EBITDA (x) -27.33x 21.64x 112.02x 30.07x 20.27x 14.66x
EV/Sales (x) 0.68x 0.86x 1.38x 1.44x 1.73x 1.82x
Price to Earnings (x) 2.06x -3.87x -0.28x -0.24x -1.20x -1.22x
Price to Book (x) 0.63x 0.46x -1.22x -0.18x -0.48x -0.31x
Book Value per Share (KES) 20.83 18.84 (4.02) (16.77) (28.07) (37.69)
Return on Assets (ROaA) -14.96% -6.62% -14.14% -10.64% -8.48% -6.46%
Return on Equity (ROaE) -58.90% -34.93% 428.41% 76.04% 40.26% 25.53%

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TABLE OF CONTENTS
Investment Summary - Recommendation Overview, Analytical Test Summaries, Share Price Performance,
Investment Outlook
2
Global Airline Industry Trends – Weighty FX Risk, Global Oil Narrative Fragile Nature of Airline Business,
Passenger and Cargo Demand Trends
4
Investment Themes – State of the African Economy, Bitter-Sweet Story Elicited by Fuel Volatility, Any Light at
the End of the Tunnel, Partnership with KLM Fails to Yield
Performance Highlights – Lull Turnover Growth, Slowed Down Cargo Revenues, Operating Losses Surged by
500.3%, Trimmed Growth on Losses before Taxes, Record-Setting Loss Shakes its Wings, Capital Position Stripped off
7
Risks to Investment Call– Is Corporate Governance a Miss in the Airline? Operational Inefficiencies a Common
Issue, Competitive Rivalry; a Big Threat to Kenya Airways, Unattractive Ticket Pricing Drags Revenues Down
11
Road Map to KQ’s Success – Cost Reduction, Revenue Management (RM), Infusion of Technology into Pricing
and Productivity Improvement, Riding on the Tag Line “Pride of Africa” to Improve Route Profitability
Cash and Financial Optimization, Tax Holidays for KQ.
13
Company Analysis – ROE Deconstruction, Altman’s Z-Score, Beneish M-score, Piotroski F-score, Ratio Analysis,
HY15/16 Analysis, Financial Summary
14
Kenya Airways Fact Sheet – Operating Statistics, Principal Shareholders, Aircraft in Service , Revenue Mix- 2015 21

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Forex risks impacts consumer
decisions, airline decisions and
financial impacts.
Fuel benefits achieved in many
economies apart from Africa.
Profitability growth spiked by
lower fuel prices, strong demand
for passenger travel and a
stronger economic performance.
Passenger revenues expected to
drive revenue growth
GLOBAL AIRLINE INDUSTRY TRENDS
Weighty FX risk in the Airline Industry:
This is the biggest risk that most airlines are faced with. The main foreign currency
exposure is the US dollar because the key cost items; fuel, maintenance and overhaul
cost (which basically contribute to 40% of the direct costs), are typically priced in US
dollar terms: Other significant costs includes aircraft purchases and lease payments.
Exchange rate volatility impacts airlines through three main channels; consumer
decisions (demand), airline decisions (supply) and financial impacts. Over the last one
year, the dollar has strengthened significantly against other major international and
regional currencies. This has resulted in revenue growth in many countries as most
airlines account for their revenue in dollar terms. However revenue has also eroded by
surging direct operating costs and firms reporting both realized and unrealized loses
accrued from fuel derivatives.
Oil on a Silver Platter for Global Economies, Austere Story in Africa:
According to IATA, the airlines fuel bill is expected to fall to USD 135Bn, which will
represent 20.6% of their total operating costs. Jet fuel prices have fallen substantially,
resulting in many airlines which had running hedges to incur both realized and
unrealized losses from their derivative contracts. Fuel prices will be the dominant
feature of airline industry economics for the better part of 2016. Threats of slackening
consumer demand may cast a long shadow on carriers. The oil price outlook will
provide the most important source of macroeconomic uncertainty facing the airline
sector in 2016. This effect has been extremely positive for various economies as the
cost savings, associated with the fuel, impacted the bottom line directly. The outlook
for oil prices remains highly uncertain, with forecasters expecting the prices to
average around USD 40/barrel in 2016. We however portend that, despite the
economies being exposed to geopolitical risks and lull economic growth, the prices
will bottom out at around USD 25/barrel by the end of the year.
Given the significance of fuel cost, airlines should focus on improving the fuel
efficiency, by replacing the fleet with new aircraft with less consumption. We forecast
that fuel efficiency, in terms of capacity use i.e. per ATK, will improve by 2% in 2016
globally. However, this may be less applicable in the African space as most airlines are
still using old aircrafts which are less efficient.
Fragile Profitability due to Cyclical Nature of Airline Business:
Airline industry profitability has improved, returning a profit of USD 19.9Bn in 2014,
from USD 10.6Bn in 2013. This return represented a 2.7% margin and a ROIC of 6.1%.
IATA projects an average net profit margin of 5.1% being generated with total net
profits of USD 36.3Bn. The strengthening industry performance will be driven by a
number of factors: 1) Lower oil prices (forecasted to be averaging a lower USD
40/barrel in 2016), 2) A strong demand for passenger travel (+6.9% in 2016), 3) A
stronger economic performance in some key economies, (including a faster than
expected recovery in the Eurozone) is expected to outweigh the overall impact of
slower growth in China and the downturn in the Brazilian economy, 4) Efficiency gains
by airlines as illustrated by record high load factors .
The industry’s profitability could be best described as “fragile” rather than
“sustainable” as airlines are finally commencing to meet the minimum expectations of
their shareholders. The industry’s return on capital (8.6%) is expected to exceed the
industry’s cost of capital (7.0%) in 2016. The profitability growth could however be
slower compared to other industries due to the cyclical nature of the airline business.
Passenger Demand Anticipated to Drive Growth in Revenue:
Global expected revenue growth is pegged at 0.9% to USD 717Bn in 2016. This will be
wholly driven by the contribution of the passenger side of the business, with
passenger revenues expected to rise to USD 533Bn in 2016 from USD 525Bn in 2015.
Cargo revenues are expected to fall slightly to USD 50.8Bn from USD 52.2Bn in 2015,
mainly due to a sluggish growth in international trade.

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Weakening economies and stiff
competition stifle growth of
Airline business in Africa.
North America Shines, Africa Lags Behind:
North America will remain to be the leading industry performer, on account of a
strong US economy, an appreciating US dollar, lower oil prices and a restructured
industry. N. America is expected to generate more than half of the industry’s total
profits in 2016, with a projection of USD 19.2Bn. The Middle East carriers are however
expected to post varied trends in 2016. Gulf airlines will continue posting sturdy
growth due to their successful long-haul super connector operations, whilst the
regionally focussed airlines may continue suffering from the impact of lower oil prices
and political conflict.
Closer to-home, we expect African airlines to remain in the red in 2016, but trim down
on their losses from USD 300Mn to USD 100Mn. Political instability is impacting
important tourism markets in North Africa, while weakening economies and stiff
competition from international economies will tend to stifle growth in the airline
industry. We expect these effects to trickle down to our national carrier with slower
growth anticipated in the long run.
GLOBAL PERFORMANCE HIGHLIGHTS:

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Source: IATA, ICAO Source: IATA, ICAO
Source: IATA, ICAO
Sturdy Profit Growth for Aviation…
The airline industry had another strong year in 2014, solidifying a
positive trend in profitability after huge losses during the 2008-2009
global economic recession. Net profit margins in 2014 stood at 2.2%,
building on the previous years’ margins of 1.5%. The industry’s
profitability was mainly underpinned by improving global economic
conditions as a result of robust growth in passenger and air cargo
demand. Furthered by Lower fuel costs also helped, however airlines
were yet to experience the benefits of the decline in fuel prices; due
to hedging. Looking ahead, the financial performance of non-US
carriers could be hampered by the strong appreciation of the US
dollar, which adversely affects costs denominated in US dollars.
Traffic Grew at an Accelerated Rate for some Routes while others
lagged…
RPKs between regions of the worlds expanded by 6.1%, compared
to 5.4% in 2013. The growth trend was a reflection of the increased
demand that resulted from improvements in the global economy.
RPKs between the Middle East and North America accelerated
strongly, while those for Central and South America and within Asia,
witnessed a slowdown. South America was fraught by the reduced
capacity to Venezuela because of the challenges in repatriating
their funds held by the country’s government while Asian markets
faced notable declines in international travel to Thailand and
Malaysia. Africa also posted dwindled RPK and ASK growth overall.
FTKs Resurge, RPKs Post Slower Growth, Robust Margins…
Demand for cargo and passenger services, measured in freight tonne
kilometres (FTKs) and in revenue passenger kilometres (RPKs)
accelerated in 2014, albeit for RPKs was slower. An upturn in the
global economy and an increase in world trade were the main
triggers for the growth. Greatest improvement was in mature
economies, such as USA and UK, but some emerging countries like
India and China posted faster growth rates. GDP growth has a larger
impact on the air transport demand, as each unit of GDP generates
more air travel in emerging economies than in mature markets.
Enriched Return on Invested Capital …
Overall, the return on invested capital in the industry rose from
4.9% in 2013 to 6.1% in 2014. This is short of investors’ expectations
(7-8%) based on returns from investments in other sectors. The
improvement in profitability and return on invested capital is
however remarkable, based on the fact that this was the highest it
had ever been since 2009. Biggest revenue contributor will remain
to be passenger demand as freight load factors will remain low,
based on alternate transport modes which are slowly eating away
the cargo capacity. There is also an overall weakness in world trade
growth expected to hamper progression in the cargo business.

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Resumption of daily flights to
West Africa and lifting of various
travel bans to fuel growth in 2016
Plummeting oil prices fail to offer
solace for Kenya Airways
Cash from sale of land and
aircraft expected to keep the
airline afloat as it awaits the
decision by the top shareholders
on a possible capital injection
INVESTMENT THEMES
State of the African Economy:
African airlines experienced the slowest annual demand growth, up 0.9% compared to
2013. The load factor was the lowest among the regions, dropping 1.5% to 67.5%. This
weakness in international air travel has been translated into Kenya’s national carrier,
resulting in a 2% dip in the load factor to 63.6% from 65.6% in FY14. This slump in
performance is partly attributable to the Ebola outbreak, travel advisories which had
been issued by various nations, slowed down economic growth in markets such as
Nigeria due to decline in the oil prices (oil being their biggest export) among other
factors.
Following the resumption of daily flights to Liberia’s capital Monrovia in May 2015,
after lifting of the government’s nine-month ban due to Ebola attacks, we expect the
routes to bolster the airline’s revenues by KES 4.2Bn. African operations excluding
Kenya accounted for KES 48.6Bn (54% of total passenger revenues in 2014) which was
higher than the revenue contribution for FY15 (53.8%). However we anticipate the
resumption of the daily flights to West African nations to fuel growth in the airline
business in 2016. Introduction of direct flights to the US and lifting of various travel
bans by nations such as US, France and UK is also expected to drive growth in 2016,
albeit in a modest way, since the transit will be very gradual for the airline. In the run
up to elections for 2017, Kenya’s political climate is also expected to contribute greatly
towards the recovery of the airline and hospitality business.
Bitter-Sweet Story Elicited by Fuel Volatility:
Fuel prices will be the dominant feature in the airline industry economics for the
better part of 2016. Threats of slackening consumer demand may cast a long shadow
on carriers. The oil price outlook will prove a key source of the most important source
of macroeconomic uncertainty facing the airline sector in 2016. This effect has been
extremely positive for various economies as the cost savings, associated with the
lower fuel prices, impacted the bottom line directly. However, this was not the case
for Kenya Airways as in the full year ended March 2015, KQ reported unrealized losses
worth KES 5.78Bn and realized a loss of KES 1.68Bn, a 72.43% rise from FY14.
As at 31st March 2015, the group had in place fuel hedging contracts for 79% of its
anticipated fuel requirements up to 31st March 2016 and 40% of anticipated fuel
requirements for the period to 31st March 2017. The fuel hedge contracts are set to
expire in 2017. Therefore we anticipate that the company will still report losses on
their fuel derivatives at the end of this financial year 2016, due to the falling oil prices.
After the expiry of the contracts, the airline is expected to position itself to benefit
from the falling oil prices.
Any Light at the End of the Tunnel:
KQ is currently undergoing a restructuring process expected to boost its earnings by
KES 20Bn. A strained liquidity position has created an impasse for the company,
making it difficult for it to meet its operating expenses such as paying salaries for
staff. Due to the deleterious position, the government injected KES 4.2Bn into the
airline, to help it stay afloat. A long-term bailout proposal is in discussion with the top
two shareholders (Government and KLM), under which they would either consider
debt or equity financing. A new round of equity financing through a potential rights
issue, could see the government’s ownership in KQ raised to 50% from the current
29.8%. We opine that this move would give the government the much needed control
over the airline, with expectations that it will drive it back to profitability.
The government could probably be borrowing a leaf from the successful Ethiopian
Airlines which is state-owned. The form of recapitalisation to be employed is
dependent on the instituted turnaround plan prepared by McKinsey and Seabury
consultants which is still not in the public domain. The sale of a 30-acre piece of land in

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Revenue contribution from
Europe route subdues; Africa
holds steady
Embakasi is expected to be finalized by Q1 2016, with the transaction expected to
fetch more than KES 2.2Bn. A cumulative sum of KES 14.6Bn is expected from the sale
of its assets; the sale or leasing of 4 Boeing 777-200 planes and the land sale.
This will help improve the cash position of the troubled airline even as they solicit for
more funds. Nevertheless, we anticipate that the liquidity position will be enhanced
by the fact that the airline is cutting back on its capital expenditures. As part of its
fleet rationalisation programme, Kenya Airways (KQ) has entered into a sale
agreement with a US-based airline, Omni International, for sale of its two Boeing 777-
200ER. The board has already approved the sale of the two planes with the funds
expected to boost its liquidity position.
Partnership with KLM Fails to Yield:
KLM holds 26.73% equity interest in Kenya Airways Ltd, and has a joint operations
agreement with Kenya Airways Ltd which commenced in November 1997. The
agreement allows the two airlines to co-operate in developing schedules and fares
and to share generated revenue benefits and costs for the core routes between
Nairobi and Amsterdam.
According to the chart below, revenue contribution from the Europe route has
dwindled over the years, from 29% in FY09 to 22% in FY 15 while on the other hand the
African route has remained to be the biggest contributor of revenues over the years,
with FY14 registering the highest revenue contribution of 54%. This trend has elicited
questions over the partnership between KLM and KQ over the years.
The company is currently on deliberations with its two top shareholders on a possible
capital injection. The government initially gave a KES 4.2Bn bailout package, which
was insufficient to the company. We are of the opinion that the company needs to
consider engaging strategic investors who could possibly inject capital to the tune of
KES 60Bn into the company, whilst also cementing more valuable partnerships with
other airlines that could positively impact the airline’s business in the future, post the
turn-around.
Source: Annual reports, Genghis Research
29%
27% 27% 26%
22% 22% 22%22% 21%
19% 19% 20%
18% 19%
45%
48% 49% 49%
52%
54%
49%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
60%
FY09 FY10 FY11 FY12 FY13 FY14 FY15
Revenue Contribution by region
%Europe %MiddleEast&Asia % Africa

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Revenue Performance (4Years)
Gross Profit Performance (4Years)
EBITDA Performance (4Years)
Loss before Tax Performance (4Years)
KENYA AIRWAYS PERFORMANCE HIGHLIGHTS:
Lull Turnover Growth, Slowed Down Cargo Revenues:
Flat revenue growth was however observed on a year-on-year basis. We project
the revenues for FY16 to grow by 2.3% to KES 112.75Mn. The airline recorded a
capacity of 15.41Bn available seat kilometres, a y-o-y growth of 8.6%, while the
revenue passenger kilometres (RPK) rose by 5.2% to 9.79Bn. This drove down the
achieved cabin factor to 63.6%, from 65.6% the prior year. Capacity availed to
Europe grew by 13%, mainly buoyed by the deployment of the larger B777-300ER
to Amsterdam in place of the B777- 200ER, and the upgrade of the Paris
operations to a B787 Dreamliner from the B767s. Africa’s capacity increased by
3.6% as a result of additional frequencies to most destinations. The capacity
within the domestic market registered a 29% growth following a successful entry
of their low cost carrier- Jambojet- into the arena. Kenya contributes 11% of its
total revenues as the rest of the continent contributed 49% of its total revenues.
Robust Gross Profit Margins:
The company posted sturdy growth on the gross profits between FY13 and FY14,
but the profit margin was slightly scaled down to 22.2% in FY15 from 22.3% in FY 14.
This was attributable to the decline in the cost of sales, despite the flat growth on
the revenues. We portend the margins to improve to 28.4% in FY16E based on
5.7% reduction in the direct costs and a 2.3% growth in revenues. To KES 112.75Bn.
Operating Losses Surged by 500.3%:
The operating loss rose by 500.3% y-o-y to KES 16.33Bn driven by the 107.6% surge
in fleet ownership costs to KES 25.93Bn and 16.8% increase in overheads to KES
24.50Bn. Under fleet ownership costs, KES 7Bn was accrued from the impairment
and other costs associated with the retirement of the old fleet.
Trimmed Growth on Losses before Taxes:
The profit margins were wiped out by a 186% rise in financing costs to KES 4.58Bn
and an accelerated depreciation and amortisation in the period under review. We
anticipate that loss before taxes will improve slightly to KES 19.08Bn, cutting
down on the losses based on the assumption that there will be no impairments or
other adjustments. The three- year CAGR stands at -3.6%.
Capital and Reserves Stripped off:
For the first time in history, Kenya Airways reported a negative equity position,
indicative that the carrier had exhausted its retained earnings and cash flow
hedging reserves. KQ’s negative equity position stood at KES -5.96Bn in the full
year to March 2015, from KES 28.23Bn in March 2014. The condition worsened in
September 2015, as the total equity stood at KES -33.86Bn. It’s quite clear that KQ
may not be in a position to reverse its current state soon even if it was to grow its
revenues by 10% in the next 3 years. Thus, there is a dire need for capital injection
by the shareholders to reverse the equity position.
98,860
106,009
110,161
112,749
7.2%
3.9%
2.3%
0.02
0.03
0.04
0.05
0.06
0.07
0.08
90,000
95,000
100,000
105,000
110,000
115,000
FY13A FY14A FY15A FY16E
Growthtrend
Revenues
Revenues y-o-y growth
60.4%
3.6%
30.7%
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
10,000
15,000
20,000
25,000
30,000
35,000
GrowthTrend
GrossProfit
Gross Profit Y-O-Y growth
-2,457
4,199
1,356
5,399
70.9%
-67.7%
298.1%
-1
-1
0
1
1
2
2
3
3
4
-3,000
-2,000
-1,000
0
1,000
2,000
3,000
4,000
5,000
6,000
Y-O-YGrowth
EBITDA
EBITDA Y-O-Y growth
-21,312
-11,323
-29,712
-19,075
46.9%
162.4%
35.8%
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
-35,000
-30,000
-25,000
-20,000
-15,000
-10,000
-5,000
0
GrowthTrend
LossBeforeTax
Loss Before Tax Y-O-Y growth

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Net Income Performance (4 Years)
Cash Conversion Cycle/Operating Cycle
Source: Bloomberg, Genghis Research
Breakeven Load factor vs Load factor
Source: Bloomberg, Genghis Research
Record-Setting Loss Shakes its Wings:
High finance costs, depreciation of shilling, realized and unrealized fuel hedge
losses and loan revaluation losses adversely affected the airline’s profitability,
causing a 161.5% growth in net losses to KES 25.74Bn (FY15). This was the worst
performance that KQ had ever posted. Following the implementation of the turn-
around plan in November 2015, we anticipate a slight improvement in the carrier.
Our projections for loss after tax for FY16E is KES 19.08Bn, a 25.9% improvement
from the previous performance assuming the carrier will receive a tax credit.
Taut Working Capital Cycles:
From the illustration on the left, it’s clear that the company took a shorter time
span to offset its creditors’ dues between FY07 and FY08. Between FY09 and FY10
the time increased and then stagnated. The company is facing a stagnated
operating cycle due to reduced passenger and cargo demand which form their
biggest debtors.
Far from Breaking Even on the Load Factors:
Based on our analysis, KQ is far from breaking even on its load factors based on
the poor growth in revenue. This could be mainly attributed to sluggish growth on
passenger and cargo revenues as a result of low demand.
-18,350
-9,844
-25,743
-19,075
46.4%
161.5%
25.9%
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
-30,000
-25,000
-20,000
-15,000
-10,000
-5,000
0
GrowthTrend
NetIncome
Net Income Y-O-Y growth
-60.00
-50.00
-40.00
-30.00
-20.00
-10.00
0.00
10.00
20.00
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
FY 05 FY 06 FY 07 FY 08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
Operating cycle Cash Conversion Cycle
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
Break-Even Load Factor Load Factor

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Poor Corporate governance hurts KQ
Operational inefficiencies remains a thorn
in the flesh
RISKS TO INVESMENT CALL:
Is Corporate Governance a Miss in the Airline?
Mismanagement accusations have been made against the former CEO Titus Naikuni among
other company executives by the senate committee, concerning the stalemate in Kenya
Airways. A chain of decisions made in the top level have negatively impacted KQ’s
performance, leaving it down on its knees. A parliamentary report issued towards the end of
2015, questioned the capability of Kenya Airway’s Chief Executive Officer, Mbuvi Igunze and
the company’s board to run the national carrier. It was indicated that a majority of the
executives had a deficiency of the skills required to run a company in the aviation industry,
leaving the firm at a risk of mismanagement and poor decision making.
Among the recommendations made by the senate, was the need to hire a new marketing
director with proven international experience to fix its ticketing system and ensure proper
accounting of revenue. A reconstitution of the board of directors was also recommended.
On 11th November 2015, Ambassador Dennis Awori was elected chairman of the Board of
Kenya Airways Ltd to replace the retired Mr. Evanson Mwaniki. Group Financial director, Mr.
Alex Mbugua is the latest to be sent packing, as part of the broader initiative to turn around
the fortunes of the loss-making company. Mr. Dick Murianki will replace Mr. Mbugua in an
acting capacity until the position is filled up. Rick Sine, the company’s fleet director also left
with no clear reasons cited as to his exit. This is a milestone as the airline strives to regain its
altitude as the “Pride of Africa.” Good corporate culture is what will run the organization
profitably over the long haul.
Progressively, other changes have been made to the top management team, partly
responding to demands by the senate but the same is yet to yield fruit.
Operational Inefficiencies a Common Issue:
Escalating operating costs have led to trimmed margins, with the cost of leasing aircrafts
and outsourcing services, highlighted as the main detriment. High operating costs was one
of the causes of the record-setting slump in profitability. This resulted in poor financial
performance and declining profitability. The airline showed signs of recovery in the year to
September 2015, with a significant reduction of 79.2% in the operational losses.

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KQ grapples with competition from budget
carriers and other Middle East and African
carriers
Unattractive ticket pricing drags revenues
down
Competitive Rivalry; a Big Threat to Kenya Airways:
Kenya Airways continues to face competition from regional carriers such as Ethiopian
Airlines and South African Airways. In the financial year ended June 2015, Ethiopian Airlines
posted a net profit of KES 17.8Bn (USD 175Mn) in comparison to the KES 25Bn loss posted in
March 2015 by its counterpart Kenya Airways Ltd. The airline had ferried 6.4Mn passengers
last year, against 4.2Mn passengers ferried by KQ; indicative of high competition forces
emanating regionally, from Middle East carriers (Emirates, Qatar Airways) among others.
State backed Ethiopian airlines introduced flights to Cameroon’s capital Yaoundé, raising the
competition bar. Ethiopia airlines is set to buy 10 narrow body planes. In addition, the airline
is considering Canada’s Bombardier and Brazil’s Embraer. Plans are underway to double its
fleet between now and 2025 and they expect to grow from 77 aircraft and 7.4Mn passengers
this year to 22Mn passengers and 150 aircrafts by 2025. Rwanda air on the other hand, has
partnered with Ecobank, VisaRwanda and Global travel wallet with a goal of increasing
passengers from 500,000 annually to more than 3Mn by 2020. Ecobank will power flexible
and convenient payment solutions to all travellers on the Rwanda Air fleet offering them
customer centric services.
Competition threats are also stemming from budget carriers too, exposing Kenya Airways to
the risk of reduced market share if action is not taken. Fastjet launched flights from Dar es
Salaam and Kilimanjaro to JKIA with plans underway to introduce flights between Dar es
Salaam and Mombasa & Zanzibar and Nairobi flights by the end of the year. Implementation
of the open skies policy is set to allow more airlines on the coastal route, thus we anticipate
KQ to face heightened competition as it tries to grapple with charter flights from foreign
countries. Furthermore, connection routes have also enhanced competition for the national
carrier, with some passengers opting for a much longer long haul flight rather than a more
expensive shorter flight time. Routes such as Zambia and South Africa have experienced
enhanced competition from Rwanda Air and Fastjet respectively.
Unattractive Ticket Pricing Drags Revenues Down:
The expensive ticketing system has resulted in Kenya Airways having non- competitive
tickets in the market thus leading to loss of business to competitors. Ticket pricing needs to
be competitive to attract more customers to use your airline. KQ needs to consider offering
competitive discounts to conference delegates, as well as give good rates off the peak
season to boost customers’ appetite and compete effectively with other carriers.

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Job cuts and fleet reorganisation
expected to reduce cost
Right size fleet utilization to ensure
capacity optimization.
Better pricing mechanisms
Improved route profitability
Sale of assets expected to boost cash flows
Could a tax holiday for ailing KQ offer
respite?
ROAD MAP TO KQ’S SUCCESS…
Kenya Airways (KQ) will be hoping to calm headwinds that pummelled its business as it
seeks to rebound from record losses and turn around their negative equity position. Mc
Kinsey Consultants and Seabury Consultants were tasked to come up with a turnaround
plan that will drive Kenya Airways back to profitability. Twenty four strategies are being
implemented over a period of 1.5years with savings of around USD 300Mn expected.
Below are the key focus areas for the carrier:
Cost Reduction- The national carrier signalled a new round of job cuts, barely three years
after it let go more than 500 employees in a retrenchment exercise that was meant to
reduce its costs and help revive its flagging fortunes. The fresh look at its staffing will be
to help them match their business model to reduce costs. Operation of only one type of
aircraft (or minimal number of aircrafts) will help minimize the size of spare parts
inventories, simplify the training of maintenance and repair personnel, thus improving
the proficiency and speed with which maintenance routines are done.
Revenue Management (RM) - the airline is looking into managing their revenue more
efficiently through sales effectiveness and market management. Right size fleet
utilization will also ensure that they are optimizing their capacities on the routes where
they operate.
Infusion of Technology into Pricing and Productivity Improvement- Digitalizing
reservations and purchase of tickets will help in reducing the cost of pricing the tickets.
The cost of pricing the tickets is usually higher due to the other direct costs that have to
be factored in their pricing mechanisms such as commissions. This will also help in
reducing the commissions to travel agents which thin out the operating margins.
Riding on the Tag Line “Pride of Africa” to Improve Route Profitability- Kenya Airways
stands a chance to benefit from an African-focussed route strategy. Around half of their
revenues is generated on African routes, thus giving it a competitive edge in the markets
they are already in operation. Reduced political instability will also be key in bolstering
the firms’ profitability. KQ also needs to add flights where rivals are cutting back their
service in order to counter the competition from other airlines.
Cash and Financial Optimization- This will be driven through the planned sale of assets
(both land and aircraft) expected to raise KES 14.6Bn, restructuring of their short-term
loans through conversion of short-term debt obligations of USD 250Mn into long-term
debt with tenures of about 7 years. (Long-term loans stand at USD 1.14Mn and short term
debt stands at USD 517.8Mn). In October 2015, the loss making airline drew down a KES
10Bn (USD 100Mn) bridging loan from Afrexim bank which was expected to take care of
the short term liabilities, as it worked on attaining a firmer financial footing.
Tax Holidays for KQ- This was recommended by the senate committee while
investigating on the downfall of the airline. The National Treasury should consider
initiating the process of providing a favourable tax regime, as its success will be better
achieved through the creation of Nairobi aviation hub.

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Kenya Airways Ltd
Du-pont Analysis-ROE Decomposition
From our three-step du-pont analysis, Kenya Airway’s net profit margin has deteriorated from -3.2% to -23.4%, indicating that
the company has been generating lower profits from the revenues. This could be driven by the rising financing costs and
unrealized and realized losses from their fuel hedging contracts. On the other hand, the company’s efficiency on asset
utilization has also been on a downward spiral, indicating that minimal or no value has been derived from the fleet
modernisation programme. Over the last one year, the company has more than doubled its gearing; the equity multiplier
stands at 14.85x in 2015 against 4.57x in 2014. This creates a high risk for the firm, as the company is over-leveraged making it
a bad sign.
The ROE has declined to -231.23% (FY15) from -11.38% (FY14), pointing out to a negative signal as the company is drastically
wiping out the shareholders’ value on the stock. The company is barely generating anything for its shareholders, a situation
that could have been accentuated by the negative equity position in their last financials. A decline in the net profit margin
and the asset turnover, and an increase in leverage, poses as a deleterious position for the national carrier.
Financial Statement data (KES Millions) FY13 FY14 FY15
Sales 98,860 106,009 110,161
EBT -10,826 -4,861 -29,712
EBIT -11,312 -6,462 -34,293
Interest Expense -1,907 -2,424 -4,734
Tax Expense 2,962 1,479 3,969
Net Income -7,864 -3,382 -25,743
Total Assets 122,696 148,657 182,063
Total Equity 31,209 28,229 -5,963
Three-Step Dupont Model:
Net Profit Margin (Net Income/Sales) -8.0% -3.2% -23.4%
Asset Turnover(Sales/Average Assets) 0.81 0.78 0.67
Equity Multiplier (Average Assets/Average Equity) 3.93 4.57 14.85
Return on Equity -0.25 -0.11 -2.31
Five-Step Dupont Model:
Tax Burden (Net Income/EBT) 0.73 0.70 0.87
Interest Burden(EBT/EBIT) 0.96 0.75 0.87
Operating Income Margin (EBIT/Sales) -11.4% -6.1% -31.1%
Asset Turnover (Sales/Average Assets) 0.81 0.78 0.67
Equity Multiplier (Average Assets/Average Equity) 3.93 4.57 14.85
Return on Equity -25.20% -11.38% -231.23%
Kenya Airways ROE Decomposition FY13A FY14A FY15A
Net income/ Equity -25.20% -11.38% -231.23%
Tax Burden 0.73x 0.70x 0.87x
Interest Burden 0.96x 0.75x 0.87x
Operating Margin -11.44% -6.10% -31.13%
Asset Turnover 0.81x 0.78x 0.67x
Financial Leverage 3.93x 4.57x 14.85x
-25.20% -11.38% -231.23%

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Kenya Airways Ltd
Altman’s Z-Score- Testing for Bankruptcy
Test Scores:
We used the Altman’s Z-score to determine how likely the company
could fail or go bankrupt and from our empirical results, Kenya
Airways Ltd gave signs of going bankrupt from 2013, when the
coefficient of the Z-score went below 1.88. In 2015, the carrier was
close to being declared bankrupt, with a Z-score coefficient of -
0.06.
Working Capital/Total Assets:
From our empirical results, the first ratio, working capital/total
assets, and the decline from -0.18 x to -0.23x, indicates that the
firms’ position to pay its creditors in the short term had been
worsening, but slightly improved in FY15 to -0.22.
Retained Earnings/Total Assets:
Retained earnings/total assets ratio has degenerated from 0.11x
(FY13) to 0.07x (FY14), then fell in the red (-0.09x) in FY15. The
company’s profitability has ebbed overtime, as the retained
earnings continue to be wiped out. In 2015, the company eroded its
retained earnings, leaving it with a negative position of KES
15.68Bn. This position could however be reversed, if the airline gets
a capital injection.
EBIT/Total Assets:
The company assets’ efficiency to generate extra profits has been
on a decline from -0.02x (FY14) t0 -0.09x (FY15). This is worrying
especially coming at a time when the airline has been growing their
asset base, for instance their aircraft. Despite the huge fleet, of
concern could be their capacity utilization to generate earnings.
Market Value of Equity/ Total Liabilities:
This is a fluid measure used to test the market’s (both lenders and
shareholders) confidence in the company. The ratio indicated a
significant decline from 0.21x in FY13 to 0.11x in FY14 and a further
weakening to 0.04x in FY15.
Is KQ still a Viable Investment Decision?
Based on the indicators used, Kenya Airways Ltd is currently on the
brink of being declared bankrupt. Investors should therefore
exercise caution while trading in this shares. However, the
possibilities of a bailout from the two top shareholders; the
government and KLM could offer solace to the company.
PARAMETERS(KESMillions) FY13 FY14 FY15
IncomeStatement
NetSales 98,860 106,009 110,161
OperatingIncome/loss (9,012) (2,721) (16,333)
BalanceSheet
CurrentAssets 28,608 29,636 41,052
TotalAssets 122,696 148,657 182,063
CurrentLiabilities 50,841 63,756 81,753
TotalLiabilities 91,487 120,428 188,026
RetainedEarnings 13,441 10,070 (15,676)
Publiccompanies
Marketvalueofequity 19,528 13,019 7,183
CALCULATIONS FY13 FY14 FY15 Coefficient
Workingcapital/Totalassets -0.18 -0.23 -0.22 1.2
Retainedearning/Totalassets 0.11 0.07 -0.09 1.4
EBIT/Totalassets -0.07 -0.02 -0.09 3.3
Marketvalueofequity/Total
liabilities 0.21 0.11 0.04 0.6
Netsales/Totalassets 0.81 0.71 0.61 1.0
Z-Score 0.63 0.54 -0.06 Coefficient
LEGEND Remarks
Financiallysoundifgreaterthan 2.99 Χ
Cautionrequiredifbetween 2.77-2.99 Χ
Likelytogobankruptwithin2yearsifbetween 1.8-2.7 Χ
Likelihoodofbankruptcyishighifbelow 1.88 √
Averagefornonbankruptcompanies 5.02 Χ
Averageforbankruptcompanies -0.29 √

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Kenya Airways Analytical NoteBloomberg: GNCP <GO>
Business Awards
Kenya Airways Ltd
Beneish M-Score- Testing for Earnings Manipulation
We used Beneish M-score to test for any probabilities of earnings
manipulation by the national carrier. The following analysis gives
an explanation of the empirical results observed:
Days Sales in Receivables Index: The index improved marginally
to 1.040 from 1.227, thus we drew our conclusion that the firm
has not inflated their revenues.
Gross Margin Index: The index weakened to 0.989 from 0.960,
the previous year. Kenya Airway’s margins are close to
deterioration since the index is close to surpassing the 1.0
threshold.
Asset Quality Index: the company’s asset quality depreciated
from 1.119 to 0.416. A decline in the value of intangible assets,
prepaid operating lease rentals, aircraft deposits and an increase
in the deferred tax assets contributed to the waning of the asset
quality index.
Depreciation Index: Kenya Airways could be revising the useful
life of its non-current assets upwards, or adopting a new method
that is income friendly to compute for the depreciation of its
assets. A rise in the DEPI indicates that the assets are being
depreciated at a higher than normal rate.
Sales, General and Administrative Expenses Index: There is a
disproportionate increase in the selling, general and
administrative expenses in comparison to the net sales. This is a
negative signal to the firm’s future prospects.
Leverage Index: This index rose to 1.333 in FY15 from 1.143 in
FY14, illustrating a surge in the gearing applied in Kenya Airways
over the last one year. We opine that the carrier posted their
debt position free of liability, based on the fact that they have
been heavily focussed on borrowing to meet their working
capital liabilities.
Total Accruals to Total Assets Index: This index was used to
gauge the firm’s extent to which the managers make
discretionary accounting policies to alter their earnings.
From the Beneish M-score analysis, we concluded it was likely
that the firm may have been engaging in creative accounting
techniques, both in 2014 and 2015, as its M>-2.22. Using the 5-
variable equation, we arrived at -3.17 and by using the 8-variable
equation, we arrived at -3.55. Both values are greater than -2.22,
thus a high likelihood of earnings manipulation. The main line
item that could be significantly vulnerable is depreciation, as it
had the highest variance of 30.3% among all the parameters used.
Parameters in KES Millions FY13 FY14 FY15
Net Sales 98,860 106,009 110,161
Direct costs -77,225 -75,268 -76,059
Net Receivables 10,413 13,706 14,819
Current Assets 28,608 29,636 41,052
Property, Plant and Equipment 71,502 88,389 125,422
Depreciation 4,080 5,350 10,704
Total Assets 122,696 148,657 182,063
SGA Expense 18,643 20,972 24,503
Net Income -7,864 -3,382 -25,743
Cash Flow from Operations 334 4,532 5,904
Current Liabilities 50,841 63,756 81,753
Long-term Debt 31,421 50,120 104,175
Derived Variables
Other L/T Assets [TA-(CA+PPE)] 22,586 30,632 15,589
DSRI 1.227 1.040
GMI 0.960 0.989
AQI 1.119 0.416
SGI 1.072 1.039
DEPI 1.057 1.378
SGAI 1.049 1.124
TATA -0.067 -0.053 -0.174
LVGI 1.143 1.333
M-score
5 variable model -2.64 -3.17
8 variable model -2.48 -3.55
Glossary
CA Current Assets
DSRI Days Sales in Receivables Index
GMI Gross Margin Index
AQI Asset Quality Index
SGI Sales Growth Index
DEPI Depreciation Index
SGAI Sales, General and Administrative Expenses Index
LVGI Leverage Index
TATA Total Accruals to Total Assets

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Kenya Airways Ltd
Piotroski F-Score
Testing for Strength of Firm’s Financial Position
We conducted this test to evaluate the firm’s financial strength. Piotroski’s F-score encompasses nine variables from a
company’s financial statements. The empirical results obtained indicate that Kenya Airways has an average strength on its
financial position for both 2014 and 2015.
The test was however carried out on the assumption that the firm does not employ any accounting malpractices while
preparing the financial statements. Below is a summary of the results obtained:
Profitability Signals:
 KQ scored nil on net income for both years as it has been in the loss category.
 Positive operating cash flows scored KQ one point in both years.
 The ROA for 2014 was higher than that for 2013, but fell in 2015 giving it a zero score.
 KQ scored 1 on both years for the quality of earnings as the cash flow from operations exceeded the net income
before extraordinary items.
Leverage, liquidity and source of funds:
 There was an increase in the leverage for both years, thus a score of 0.
 An increase in liquidity for 2015, tested by the current ratio, gave it a score of 1.
 Impressively, there was no dilution as the firm didn’t issue any new shares/equity in the preceding year, scoring it 1.
Operating Efficiency:
 We scored 1 for both years as there was a higher gross margin compared to the previous years.
 We scored 0 as the asset turnover ratio Y-o-Y was lower.
PARAMETERS in KES Millions FY13 FY14 FY15
Net Income (7,864) (3,382) (25,743)
Total Assets 122,696 148,657 182,063
ROA -6.4% -2.3% -14.1%
Cash from Operations (537) 2,738 1,214
LT Debt 31,421 50,120 104,175
LT Debt/Total Assets 25.6% 33.7% 57.2%
Current Assets 28,608 29,636 41,052
Current Liabilities 50,841 63,756 81,753
Current Ratio 0.56 0.46 0.50
Net Income From Total Operations (7,864) (3,382) (25,743)
Fully Diluted EPS 6.35 (2.25) (17.21)
Shares outstanding 1,496 1,496 1,496
Revenues 98,860 106,009 110,161
Gross Income 21,635 30,741 34,102
Gross Margin 21.9% 29.0% 31.0%
Asset Turnover 0.81 0.71 0.61
Piotroski Calculation FY14 FY15
Piotroski 1: Net Income 0 0
Piotroski 2: Operating Cash Flow 1 1
Piotroski 3: Return on Assets 1 0
Piotroski 4: Quality of Earnings 1 1
Piotroski 5: LT Debt vs Assets 0 0
Piotroski 6: Current Ratio 0 1
Piotroski 7: Shares Outstanding 1 1
Piotroski 8: Gross Margin 1 1
Piotroski 9: Asset Turnover 0 0
Piotroski F Score 5 5
KQ has an average strength on its financial position

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Source: Annual Reports, Genghis Research
Kenya Airways Limited
Ratio Analysis
Year End- 31st March
Year End -31st March - KES (Mns) FY13A FY14A FY15A FY16E FY17F FY18F FY19F FY20F
Number of shares 1,496 1,496 1,496 1,496 1,496 1,496 1,496 1,496
Managers Viewpoint
Gross profit margin 14.9% 22.3% 22.2% 28.4% 33.4% 38.3% 43.0% 47.8%
EBITDA margin -2.5% 4.0% 1.2% 4.8% 8.6% 12.4% 17.1% 21.9%
EBIT margin -8.3% -2.6% -9.8% -10.7% -6.2% -1.5% 4.3% 10.2%
Return on assets (ROA) -15.0% -6.6% -14.1% -10.6% -8.5% -6.5% -3.4% 0.1%
Fixed assets turnover 1.05 0.89 0.78 0.72 0.70 0.69 0.69 0.70
Total assets turnover 0.81 0.71 0.61 0.63 0.62 0.61 0.62 0.62
Net income margin -18.6% -9.3% -23.4% -16.9% -13.7% -10.6% -5.5% 0.2%
Free cash flow yield 0.0% 0.0% 0.0% -137.6% -129.2% -134.7% -61.9% -41.4%
Total assets growth 21.16% 22.47% -1.54% 11.27% 11.79% 13.26% 14.34%
Owners/ Investors Viewpoint
Earnings/ (loss) per share 6.35 (2.25) (17.21) (12.75) (11.30) (9.62) (5.75) 0.19
Dividends per share - - - - - - - -
Return on equity (ROE) -58.9% -34.9% 428.4% 76.0% 40.3% 25.5% 13.2% -0.4%
Price to earnings (P/E) 2.06x -3.87x -0.28x -0.24x -1.20x -1.22x -3.60x 114.76x
Price to book value (P/B) 0.63x 0.46x -1.22x -0.18x -0.48x -0.31x -0.48x -0.50x
Lenders Viewpoint
Current ratio 1.41x 1.19x 1.08x 0.52x 0.53x 0.54x 0.56x 0.57x
Quick ratio 1.28x 1.09x 1.03x 0.47x 0.48x 0.50x 0.51x 0.53x
Cash Ratio 0.71x 0.45x 0.09x 0.05x 0.05x 0.04x 0.04x 0.04x
Operating Cash Flow/Current Liabilities -0.01x 0.04x 0.01x 0.07x 0.03x 0.10x 0.25x 0.41x
Operating Cash Flow/Sales -0.01x 0.03x 0.01x 0.03x 0.01x 0.04x 0.08x 0.12x
Operating Cash Flow/Total Liabilities -0.01x 0.02x 0.01x 0.01x 0.01x 0.02x 0.04x 0.06x
Debt-Asset ratio 0.51x 0.60x 0.81x 0.89x 0.98x 1.04x 1.05x 1.03x
Debt-Capitalization ratio 1.99x 3.16x -24.59x -6.37x -4.65x -4.10x -4.09x -4.59x
Efficiency
Inventory Turnover 33.23x 33.47x 45.16x 40.56x 40.56x 40.56x 40.56x 40.56x
Receivables Turnover 9.49x 7.73x 7.43x 7.77x 7.77x 7.77x 7.77x 7.77x
Payables Turnover 8.12x 6.78x 4.70x 4.06x 4.06x 4.06x 4.06x 4.06x
Working Capital Turnover 11.90x 22.21x 37.88x -5.50x -5.94x -6.45x -7.07x -7.80x
Per share data
EPS 6.35 (2.25) (17.21) (12.75) (11.30) (9.62) (5.75) 0.19
DPS - - - - - - - -
BVPS 20.83 18.84 (4.02) (16.77) (28.07) (37.69) (43.44) (43.29)
Sales per share 66.08 70.86 73.64 75.37 82.31 90.71 104.03 120.34
Valuation Multiples
EV/EBITDA(x) -27.33x 21.64x 112.02x 30.07x 20.27x 14.66x 11.10x 8.31x
EV/Sales(x) 0.68x 0.86x 1.38x 1.44x 1.73x 1.82x 1.89x 1.82x
P/E(X) 2.06x -3.87x -0.28x -0.24x -1.20x -1.22x -3.60x 114.76x
P/BV(X) 0.63x 0.46x -1.22x -0.18x -0.48x -0.31x -0.48x -0.50x
Price to Sales 0.20x 0.12x 0.07x 0.04x 0.16x 0.13x 0.20x 0.18x

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Kenya Airways Ltd
Half Year Analysis
Year end- September 30th
Financial Highlights:
 Flat revenue performance with capacity down 7.9%. Number of passengers ferried grew by 2.0% but didn’t translate to
passenger revenue growth. Cargo revenues were further impacted by lower yields from the ban on khat into Europe, a
high cargo yield commodity.
 Operating loss improved by 79.2% to KES 2.2Bn from KES 10.5Bn, driven by a drop in direct operating and fleet costs. The
rationalisation of operations coupled with the respite in fuels, triggered the reduction.
 Loss before income tax improved by 5.1% to KES 11.9Bn, despite a 104.1% surge in finance costs and a realized loss of KES
1.3Bn on fuel derivatives.
 Net loss for the period stood at KES 12.0Bn, which incorporated a one off restructuring adjustment of KES 4Bn.
Income Statement for the half year ended September 30th in Mns HY12 HY13 Var HY14 Var HY15 Var
Revenue 49,832.0 54,338.0 9.0% 56,788.0 4.5% 56,720.0 -0.1%
Direct Operating costs (39,877.0) (37,265.0) 6.6% (42,171.0) 13.2% (34,794.0) 17.5%
Fleet ownership costs (5,345.0) (5,954.0) -11.4% (13,164.0) 121.1% (13,143.0) 0.2%
Overheads (10,143.0) (9,380.0) 7.5% (11,908.0) 27.0% (10,959.0) 8.0%
Total Operating costs (55,365.0) (52,599.0) 5.0% (67,243.0) 27.8% (58,896.0) 12.4%
Operating loss (5,533.0) 1,739.0 131.4% (10,455.0) -701.2% (2,176.0) 79.2%
Operating Margin -11.1% 3.2% -18.4% -3.8%
Finance costs (959.0) (1,214.0) 26.6% (1,703.0) 40.3% (3,476.0) 104.1%
Finance Income 733.0 488.0 -33.4% 148.0 -69.7% 5.0 -96.6%
Realised gain/ (loss) on fuel derivatives (85.0) 216.0 154.1% 681.0 215.3% (1,312.0) -292.7%
Other costs (744.0) (681.0) 8.5% (1,170.0) 71.8% (4,897.0) 318.5%
Loss before income tax (6,588.0) 548.0 -108.3% (12,499.0) -2380.8% (11,856.0) 5.1%
Income tax (expense)/credit 1,801.0 (164.0) -109.1% 2,048.0 1148.8% (96.0) -104.7%
Loss after tax (4,787.0) 384.0 (10,451.0) (11,952.0)
Net profit margin (%) -9.6% 0.7% -18.4% -21.1%
Loss per share (4.85) 0.26 1.1% (7.99) -11819.5% (6.99) 12.5%
Profit/ (loss) for the period (4,788.0) 384.0 0.0% (10,451.0) -7.1% (11,952.0) 0.0%
Balance Sheet for the half year ended September 30th in Mns HY12 HY13 Var HY14 Var HY15 Var
Non -Current Assets 94,062.0 106,597.0 13.3% 158,392.0 48.6% 135,267.0 -14.6%
Current Assets 28,608.0 30,328.0 6.0% 24,961.0 -17.7% 40,772.0 63.3%
Total Assets 122,670.0 136,925.0 11.6% 183,353.0 33.9% 176,039.0 -4.0%
Equity and Liabilities
Equity attributable to owners 31,155.0 31,291.0 0.4% 14,976.0 -52.1% (33,909.0) -326.4%
Non-controlling interests 54.0 50.0 -7.4% 41.0 -18.0% 48.0 17.1%
Total equity 31,209.0 31,341.0 0.4% 15,017.0 -52.1% (33,861.0) -325.5%
Non-current liabilities 40,620.0 47,478.0 16.9% 98,341.0 107.1% 118,565.0 20.6%
Current Liabilities 50,841.0 58,106.0 14.3% 69,995.0 20.5% 91,335.0 30.5%
Total liabilities 91,461.0 105,584.0 15.4% 168,336.0 59.4% 209,900.0 24.7%
Total equity and liabilities 122,670.0 136,925.0 11.6% 183,353.0 33.9% 176,039.0 -4.0%
Cashflow Statement for the half year ended September 30th in Millions HY12 HY13 Var HY14 Var HY15 Var
Cash flows from operating activities
Cash generated from operations 252.0 5,186.0 1957.9% (610.0) -111.8% 4,606.0 855.1%
Interest received 733.0 488.0 -33.4% 148.0 -69.7% 5.0 -96.6%
Interest paid (602.0) (1,214.0) 101.7% (1,703.0) 40.3% (3,476.0) 104.1%
Income tax paid (155.0) (78.0) 49.7% (41.0) 47.4% (97.0) 136.6%
Net cash generated from operating activities 228.0 4,382.0 1821.9% (2,206.0) -150.3% 1,038.0 147.1%
Cash flows from investing activities
Purchase of property and equipment (6,544.0) (6,484.0) 0.9% (62,642.0) 866.1% (478.0) -99.2%
Proceeds from disposal of property and equipment 8.0 25.0 212.5% 0.0 -100.0% 538.0
Purchase of intangible assets 0.0 0.0 (32.0) 0.0 -100.0%
Deposits paid for aircraft purchases (6,513.0) (9,631.0) 47.9% 0.0 -100.0% 0.0
Aircraft deposits refunds received 50.0 0.0 -100.0% 14,591.0 420.0 -97.1%
Delayed settlement compensation 0.0 0.0 2,506.0 0.0 -100.0%
Deferred expenditure (85.0) (1.0) -98.8% (1,098.0) 109700.0% (366.0) 66.7%
Net cash used in investing activities (13,084.0) (16,091.0) 23.0% (46,675.0) 190.1% 114.0 100.2%
Cash flows from financing activities
Borrowings received 8,623 16,761.0 94.4% 64,105.0 282.5% 14,423.0 -77.5%
Repayments of borrowings (2,436.0) (6,200.0) 154.5% (21,070.0) 239.8% (11,375.0) 46.0%
Repayment of finance lease obligations (100.0) (105.0) 5.0% (861.0) 720.0% 0.0 -100.0%
Net cash generated from financing activities 19,890.0 10,456.0 -47.4% 42,174.0 303.3% 3,048.0 -92.8%
Net Increase/ (Decrease) in cash and cash equivalents 7,034.0 (1,253.0) -117.8% (6,707.0) 435.3% 4,200.0 162.6%
Cash and cash equivalents at beginning of period 6,840.0 14,393.0 110.4% 11,218.0 -22.1% 3,267.0 -70.9%
Cash and cash equivalents at end of period 13874 13,140.0 -5.3% 4,511.0 -65.7% 7,467.0 65.5%

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Kenya Airways Limited
Summary Financials
Year End- 31st March
KES in Millions, unless stated otherwise FY13A FY14A FY15A FY16E FY17F FY18F FY19F FY20F
Income Statement
Revenue 98,860 106,009 110,161 112,749 123,136 135,702 155,626 180,024
Cost of Sales 84,128 82,375 85,678 80,754 82,015 83,698 88,632 94,036
Gross Profit 14,732 23,634 24,483 31,995 41,121 52,004 66,995 85,989
Selling, General& Admin Expenses 17,189 19,435 23,127 26,596 30,585 35,173 40,449 46,517
EBITDA (2,457) 4,199 1,356 5,399 10,536 16,831 26,545 39,472
Depreciation and Amortisation 5,729 6,920 12,106 17,517 18,115 18,860 19,816 21,062
EBIT (8,186) (2,721) (10,750) (12,119) (7,580) (2,030) 6,729 18,410
Net Finance Costs 486 1,601 4,581 6,956 9,328 12,368 15,331 18,127
Profits Before Tax (PBT) (21,312) (11,323) (29,712) (19,075) (16,908) (14,398) (8,602) 283
Profits after Tax (PAT) (18,350) (9,844) (25,743) (19,075) (16,908) (14,398) (8,602) 283
Balance Sheet
Inventories 2,532 2,461 1,897 1,991 2,022 2,064 2,185 2,319
Accounts Receivables 10,413 13,706 14,819 14,518 15,856 17,474 20,040 23,181
Cash 14,393 11,218 3,267 2,000 2,000 2,000 2,000 2,000
Other Current Assets 1,270 2,251 21,069 3,426 3,426 3,426 3,426 3,426
Total Current Assets 28,608 29,636 41,052 21,936 23,304 24,964 27,651 30,926
Property Plant and Equipment 71,502 88,389 125,422 141,322 159,599 180,707 206,577 238,171
Intangibles 2,029 1,619 1,163 1,570 2,120 2,861 3,863 5,215
Airport Deposits 19,095 27,505 10,391 10,391 10,391 10,391 10,391 10,391
Other Fixed Assets 1,462 1,508 4,035 4,035 4,035 4,035 4,035 4,035
Total Fixed Assets 94,088 119,021 141,011 157,318 176,144 197,995 224,866 257,812
Total Assets 122,696 148,657 182,063 179,254 199,448 222,958 252,517 288,738
Payables 10,357 12,150 18,244 19,912 20,223 20,638 21,854 23,187
Sales in advance of carriage 9,087 10,786 11,270 13,901 15,181 16,730 19,187 22,195
Others 853 1,928 8,630 8,630 8,630 8,630 8,630 8,630
Total Current liablities 20,297 24,864 38,144 42,443 44,034 45,998 49,671 54,012
Overdraft facility 0 0 25,218 52,187 102,460 149,889 195,862 237,956
Bank Loan 61,965 89,012 122,566 107,564 92,802 81,316 69,831 59,391
Other 9,225 6,552 2,098 2,098 2,098 2,098 2,098 2,098
Total Long Term Liabilties 71,190 95,564 149,882 161,849 197,359 233,303 267,791 299,445
Shareholders Equity 31,155 28,186 -6,009 -25,084 -41,991 -56,389 -64,991 -64,765
Total Shareholders equities and liabilities 122,696 148,657 182,063 179,254 199,448 222,958 252,517 288,738
Cash Flow Statement
Operating Cash Flows -537 2,738 1,214 2,948 1,431 4,767 12,200 22,410
Investing Cash Flows -39,466 -31,878 -76,766 -16,182 -36,941 -40,711 -46,688 -54,007
Financing Cash Flows 47,556 25,965 67,601 11,967 35,510 35,944 34,488 31,597
Movement in cash and cash equivalents
Beginning Cash Balance 6,840 14,393 11,218 3,267 2,000 2,000 2,000 2,000
Net movement in cash 7,553 -3,175 -7,951 -1,267 0 0 0 0
Ending Cash Balance 14,393 11,218 3,267 2,000 2,000 2,000 2,000 2,000

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KENYA AIRWAYS FACT SHEET
Kenya Airways Ltd
Operating Statistics
Kenya Airways Ltd
Principal Shareholders
ce: Ann S Source: Annual Reports, Genghis Research Source: Annu Source: Annual Reports, Genghis Research
Kenya Airways Ltd
Aircraft in Service
Kenya Airways Ltd
Revenue Mix- 2015
ce: Annu Source: Annual Reports, Genghis Research
Figures in Mns.
Source: Annu Source: Annual Reports, Genghis Research
*As of September 2015, the fleet in service were 48 with an additional Boeing 787-8 and Boeing 737-800 delivered and 5 Boeing 767-
300 and Embraer 170 awaiting return/ sale. In January 2016, 2 Boeing 777-200 were confirmed sold and now awaiting delivery to Omni
International.
Parameter FY15 FY14 FY13 FY12
Passengers carried 4,179,046 3,719,590 3,664,844 3644492
y-o-y Growth 12.35% 1.49% 0.56%
RPK's (Million) 9,793 9,309 9,579 9943
y-o-y Growth 5.20% -2.82% -3.66%
ASK's (Million) 15,406 14,188 13,937 13875
y-o-y Growth 8.58% 1.80% 0.45%
Cabin factor (%) 63.6 65.6 68.7 71.7
Cargo Tonnes lifted 73693 71340 69871 62504
Par yield/RPK incfuel
Surchange (Usc) 9.55 10.47 9.81 9.9
Passenger Seat Factor 0.64 0.66 0.69 0.72
NameofShareholder Number ofShares %Shareholding
PermanentSecretary totheTreasury 445,920,557 29.8%
KLM-KoninklijkeLuchtvaartMaatschappij 400,020,026 26.7%
Standard Chartered NomineesLtd Non-residentA/C KE11752 143,000,000 9.6%
Standard Chartered NomineesLtd A/C KE17682 71,116,080 4.8%
Standard Chartered NomineesLtd A/c9187 35,906,095 2.4%
Standard Chartered NomineesLtd A/c9230 20,630,773 1.4%
Gulamali Ismail 10,424,100 0.7%
Vijay KumarRatilalShah 9,309,060 0.6%
MikeMainaKamau 8,003,940 0.5%
Old MutualLifeAssuranceCompany Ltd. 7,477,369 0.5%
Othershareholders 344,661,035 23.0%
Total 1,496,469,035 100.0%
Aircraft as of March 2015 FY15 FY14 FY13
Boeing 787-800 6 1 0
Boeing 777-300 3 1 0
Boeing 777-200 4 4 4
Boeing 767-300 5 6 6
Boeing 737-800 6 5 5
Boeing 737-700 4 4 4
Boeing 737-300 4 4 5
Embraer 190 15 15 12
Embraer 170 3 5 5
B737-300 Freighter 2 2 1
B747-400 Freighter 0 0 1
Total 52 47 43
90,408
9,783
2,080
7,890
Passengers Freight and Mail Handling Others

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EQUITY RESEARCH
Business Awards
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