Kenya Airways will be hoping investors will look beyond the profit warning it issued last month to take up the rights issue approved by the Capital Markets Authority on Friday.

The regulator said it had given the airline the go ahead to list an additional 1.4 billion ordinary shares, which the company hopes will net Ksh20.7 billion ($246 million).

The price is yet to be determined after the airline holds an investor briefing on the share deal on Monday. Analysts had predicted that investors were likely to give the airline’s share sale — expected either in the first or second quarter of 2012 — a wide berth, over uncertainty in KQ’s earnings given the volatility of the airline sector.

On Friday, statistics from the Nairobi Securities Exchange showed KQ’s share was trading at a one month high, but foreign investors were seen opting out of the stock — the highest foreign investor outflow for the week of all the listed firms. The stock is currently trading at Ksh18 (21 US Cents).

Stella Kilonzo, the CMA boss said the regulator was satisfied with the Kenya Airways application for a rights issue. The airline is banking on the cash to fund an ambitious expansion strategy that will see it fly to all African capitals by 2013, as well as double its current fleet of 31 planes by 2015. KQ is battling increased competition especially from Middle East carriers such as Etihad Airways, Emirates, Qatar Airways and Royal Air Jordanian, which are opening up more routes on the continent where the Kenyan carrier draws nearly half of $1 billion revenues.

Ethiopian Airlines, KQ’s major rival plans to increase its fleet of 47 planes by ordering an additional 35 aircraft in the next 15 years
To beat the rivals, KQ has placed orders for 10, 96-seater Embraer planes, slated for delivery in 2013. The company has the option of exercising the right to buy 16 other planes. The airline has also placed an order for nine Dreamliners. These fleet expansion plans, are part of the five-year plan to double its fleet, from the current 31.

The airline hopes the Dreamliners will help it reduce fuel costs, since they consume 20 per cent less, compared to the Boeing747. In the first half of the year, the airline reported an 89.7 per cent increase in fuel costs to Ksh21.2 billion ($252 million), partly as a result of a 41.6 per cent increase in jet fuel costs. The airline in January warned that 2012 full year profits could fall by at least 25 per cent, as the eurozone crisis and Arab revolution had negatively affected its performance for the second half of the current year.

The airline reported a profit of Ksh3.5 billion ($41.6million) in 2010, meaning going by the estimated 25 per cent drop, the airline is likely to post a maximum of Ksh 2.6 billion ($30.9million) in profits.

KLM and the Kenyan government own 26 and 23 per cent of the company, and the two have indicated that they will be taking up their full rights.