Kenya Airways (KQ) expects to spend more than Sh270 billion ($3 billion) in the next five years to finance its expansion plans, the company told investment analysts last week.
The national carrier plans to raise the money through a rights issue, retained earnings and debt.
The company intends to double its fleet, currently at 31 planes, by 2015 and diversify into cargo business.
Kenya Airways held the investor briefing as part of preparations for the planned rights issue, which is, however yet, to get the Capital Markets Authority approval.
Mr Eric Musau, an analyst with Standard Investment Bank who attended the briefing, said the airline indicated that it will spend up to $5 billion (Sh450 billion) in the next 10 years.
The heavy capital expenditure could see KQ’s dividend pay reduce or remain constant.
“They have been quite conservative in their dividend payout and I would expect the same to continue, dependant on revenue growth, so as to meet the expansion plans in a balance that will not over-commit them nor dilute the shareholders value,” said Mr Musau. Last year, the company paid out a dividend of Sh693 million equivalent to Sh1.50 for every share, out of net earnings of Sh3.5 billion.
The company intends to use operational revenues to finance half of its plans as it balances between expansion and protecting the shareholders’ worth by avoiding share dilution.
KQ has already confirmed that it intends to carry out a rights issue but is yet to disclose details of the offer as it awaits approval from the regulator. A report earlier this year by Kestrel Capital had stated that the company intended to raise Sh22 billion.
The company is expected to build up its balance sheet by retaining more of its earnings, a strategy that would also strengthen its borrowing capacity.
KQ had Sh20 billion held as retained earnings last year.
The carrier has been expanding its routes, with the most recent being to the Middle Eastern city of Jeddah in The Kingdom of Saudi Arabia which starts on October 18. However, airport infrastructure has limited the company’s growth plans. The ongoing expansion of Jomo Kenyatta International Airport (JKIA) in Nairobi and building of Isiolo international airport are expected to add impetus to KQ’s growth strategy.
The company has ordered 26 jets from Brazilian manufacturer, Embraer, and its first cargo plane is expected in three weeks.
It now seeks to diversify from passenger income, with freight services expected to contribute 20 per cent of its revenue in the long-term.
“They have frequently said that demand for their services outweighs their supply and so the expansion strategy is good, especially with the expected completion of JKIA terminal four,” said Johnson Nderi, an analyst with Suntra Investment Bank.