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This research report was prepared by the Research Department of Old Mutual Securities Limited. Old Mutual Securities Limited is a securities trading company licensed by the Capital Markets Authority (Kenya) for the purpose of facilitating trade on the Nairobi Securities Exchange.

Here are our views on the news making headlines today for Kenya:
KQ posts KES 25.7bn loss on debt-fuelled modern fleet plan. KQ has been executing a debt-financed modern fleet plan that has pushed its total liabilities to Sh187.9 billion, more than its assets that are currently valued at Sh182 billion. The airline continues to operate, relying on additional debt to meet its obligations, including paying employees’ salaries and suppliers whom it owed KES .9 billion by end of March.

Our View: though the loss was expected as it had already issued a profit warning in November 2014 but we must admit we did not expect it to be that huge. This has been occasioned by a slump in revenues due to the Ebola Epidemic, slump in tourism and also huge financing costs as result of their fleet expansion. Operating Challenges facing the carrier include; Volatile Fuel costs, competition, more recently the threat of terrorism and epidemics, global economic conditions, staff reorganization and shortage of qualified captains which will continue to depress its operating Margins. Airlines globally have stood out as having some of the lowest returns owing to cut-throat competition, high operating costs and intense regulation.
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