KQ flies into rough cloud after record Sh26.2b loss
Kenya Airways has plunged deeper into the red after recording a Sh26.2 billion net loss for the year ended March 2016.
This is a worse performance compared to the Sh25.7 billion net loss that the national carrier recorded a year ago.
Annual results released on Thursday by the listed airline, known as KQ by its international code, showed that its net loss had worsened two per cent, largely due to foreign exchange losses and an increase of other costs, including interest on loans.
KQ’s management said that a 12.9 per cent weakening of the shilling against the US dollar cost the carrier Sh9.7 billion in foreign exchange losses.
Kenya Airways, whose total loans now stand at Sh113.2 billion, also saw its finance costs increase by Sh2.3 billion to close the year at Sh7 billion, mainly due to depreciation of the shilling.
“Ninety eight of our loans are dollar-denominated, including local ones. We got these loans when the shilling was trading at 75 or 78 units to the dollar and we are repaying them at 101,” said Mr Dick Murianki, the airline’s acting finance director.
“As at the end of the financial year, we held cash in various countries such as South Sudan and Nigeria and translation of these monetary assets has seen us lose significant value.”
KQ, whose top two shareholders are the Treasury and KLM, also took an ironical beating from the global dip in fuel prices, booking a Sh5.1 billion fuel-hedge loss.
Volatility of oil prices causes airlines to enter into forward agreements with financiers to lock in prices of their projected oil requirements to limit exposure to price surges.
This deal, however, turned disadvantageous starting two years ago, when an increased supply of oil from the US and slackening of demand from the Chinese economy triggered a fall in global prices.
“The airline substituted Boeing 777-200 and -300 aircraft with the Boeing 787, which burns fuel more efficiently, saving us money. However, we took a hit from our hedging even while customers demanded cheaper prices,” said Mr Murianki.
Other expenses that hit KQ were maintenance costs on its fleet, which now stands at 36 planes, having dropped by seven in the past year.
The fewer aircraft, Mr Murianki said, are making more round trips and therefore require more service sessions.
Further, the parked aircraft which KQ has lined up for sale or lease were still incurring maintenance costs because they were being made “attractive” to potential buyers.
The national carrier’s record-breaking loss came about despite it recording significant gains from recent asset sales such as the London slot from which its accountants booked a Sh5.4 billion gain.
KQ recently sold off two aircraft as part of its Operation Pride restructuring plan, a transaction from which a portion of the expected Sh2 billion gain was booked.
The airline’s revenue for the period increased to Sh116.1 billion from Sh110.1 billion in the same period last year, a pointer to the state of the firm’s core business.
“We sold two aircraft in February and we have received that money. The net benefit from this sale was $20 million (Sh2.02 billion). This is the difference between the loans we took to acquire them and what were paid,” said Mr Mbuvi Ngunze, KQ’s Chief Executive Officer.
Despite the huge loss, KQ registered a 12 per cent growth in passenger numbers, which rose to 4.23 million. The airline also saw an increase in revenue from handling (the ground services it offers competitors in Kenya), part of which helped it improve the operating loss position to Sh4.1 billion from last year’s Sh16.3 billion.
Its operating costs also decreased five per cent, while the loss before tax improved by 12.1 per cent to Sh26.1 billion.
Mr Ngunze said the airline was reviewing its long-term options in capital raising with an announcement on equity raising expected to be made “early next year”.
The airline received a Sh10 billion loan in September last year from Afrexim Bank through the Treasury. A second tranche of Sh10 billion was released this month.