The following analysis on KQ by investment analyst George Bodo was first published in the Business Daily.

Kenya Airways apparent cash-flow problems have been recently serialised in the media to the extent that it emerged the airline had delayed remittance of employee monthly check-off obligations to banks, ostensibly to boost cash-flow position.

KQ has maintained a policy of ambiguity on this issue, neither confirming nor denying sitting on a precarious cash position.

But the existence of a cash-flow problem could be easily negated by the fact that the airline has been operating positive EBITDA margins over the past five years, averaging at 13.4 per cent between 2010 and 2014: this despite reporting a cumulative net loss position of Sh4 billion over the same period.

However, if indeed there is cash-flow stress, then it has all to do with the airline’s balance sheet management strategies. First, KQ has no business in owning aircraft in its balance sheet. This is because owning aircraft is very expensive.

Today, Uber is almost the world’s largest taxi company but doesn’t own a single taxi. In fact, for the full-year period ended March 31, 2014, the airline took a depreciation and amortisation charge of Sh5 billion in its profit and loss accounts, just because it owns aircraft.

This is a figure that could have been used to convert the full-year loss for that period to a profit of Sh2 billion (the airline reported a Sh3.4 billion loss in the period).

And with the airline continuing to register new aircraft, this depreciation and amortisation figure is likely to grow in the coming financial years.

Secondly, the airline should not be planning to own the aircraft it currently operates, but doesn’t fully own.

Between 2011 and 2014, the airline has honoured finance lease obligations to the tune of Sh1 billion. The airline could make some sizeable savings by converting all its finance leases into operating leases (and effectively taking on a path of de-owning its fleet).

And in order to de-leverage its balance sheet, to help ease its long-term cash-flow position, the airline should now fast-track its planned fixed asset monetisation programme.

This would typically involve the sale and leaseback of a portion of its non-leveraged fleet. This would be done through a Special Purpose Vehicle (SPV), in which KQ will hold absolutely minority stake with majority stake going to some third party entities.

KQ would then sell and lease back the aircraft from the SPV.

The net effect is that a sale and leaseback should offer long-term cash-flow and earnings enhancements to KQ and may help re-create wealth for its shareholders.

Looking at the airline’s current fleet, approximately nine high value aircraft have not yet been leveraged on and can form a good portion of the asset monetisation programme. The sale and leaseback has the added benefit of transferring the risks and costs associated with outright aircraft ownership to a remote SPV.

KQ would emerge from the transaction a leaner and more efficient service provider and would be better equipped to deal with the increasing competitive pressures in the local and regional markets specifically. Otherwise, KQ’s balance sheet is already heavily geared, limiting its fund-raising options. There is little room for additional debt (and even if they were to create a room, it wouldn’t be finely priced). And the market may not have enough appetite to participate in additional share sale.