Kenya Airways posts Sh26b net loss

National carrier Kenya Airways has left shareholders empty-handed after it soaked in a net loss of Sh26.23 billion for the full year ended March 31, 2016.

The loss has widened by Sh482 million compared to the Sh25.74 million loss it delivered to investors in the previous financial period. The national carrier last registered a profit in 2012 when it made Sh1.66 billion.

Announcing the results yesterday at the airline’s headquarters, CEO Mbuvi Ngunze who remained upbeat of turning around the airline’s bad fortunes attributed the dismal performance to high finance costs and weakening shilling.

Ngunze’s hopes are based increased passenger numbers that hit 4.23 million, reduction in operating cost and improved revenue flow that grew by five per cent.
“We are turning the corner and are in a better place, strategically. Most significantly, and in a difficult global business environment, we are improving our business and keeping a tight lid on our costs.”

But despite carrying about 11,500 people to 54 destinations daily and making 160 landings and take-offs, the national carrier books remained in the red.

“We have delivered the same bottom line as last year,” the Harvard University graduate sadly told investors even as he moved to reassure them that the carrier, whose death has been predicted severally, will remain afloat.

During the period under review, the Kenyan shilling lost ground against the US dollar by 12.9 per cent to drive up its costs of servicing debt. As a result, the finance cost was up by 48.85 per cent to Sh7.04 billion. Ngunze said since about 98 per cent of the loans are dollar-denominated, the strong greenback meant higher interest charges.

Fuel hedging

The carrier managed to increase its revenue marginally by 5.44 per cent to Sh116.2 billion supported by increase in customers, up from 4,179 to 4,250 as well as revenue from sale of the London Heathrow slot at Sh5.4 billion.

According to the airline’s acting Group Finance Director Dick Murianki, the lower fuel prices acted as a double-edged sword as customers demanded for lower ticket prices. But on the positive side, the carrier cut its fuel costs by 38 per cent. However, it suffered a hedging loss on fuel derivatives of Sh4.2 billion. This was a drop from last year’s Sh7.45 billion since the company put a hedge in the ranges of $20 (Sh2,028).

Assets of the company have reduced to Sh158.4 billion from the previous figure of Sh182.1 billion as a result of selling of aircraft.
Its current assets stand at 29.7 billion but include the value of two planes that are being held for sale. But the non-current liabilities have hit Sh120.6 billion, up from Sh107.3 billion.

This is highly as a result of increased loans and borrowings. But more worrying, the company has now sunk into negative equity of Sh35.6 billion, with equity attributed to owners standing at negative Sh35.7 billion. This is a rise by 498 per cent from the previous year.

KQ chairman Dennis Awori said at that position, it is a tall order to attract investors. The return on investment has sunk to negative 16.4 per cent.
At a debt ratio of 122.5 per cent, it is clear the firm will struggle more to service its long-term obligations since assets cannot adequately cover long-term liabilities.

According to the CEO, there are positives despite the widened net loss, KQ managed to cut its operating loss by 74.9 per cent from Sh16.3 billion in 2015 to Sh4.09 billion in 2016. That translates to a reduction of Sh12 billion at operating level.

He said the ‘Operation Pride’ programme that began mid last year is pumping some light into the company. Under the programme, the airline seeks to revise its business model and restore financial stability.

“One of the key goals of Operation Pride is a reduction of the gap in profitability, which is on track. We are turning the corner and are in a better place strategically,” said Ngunze.

“We have lost staff and we have had some attrition from the pilot community but it has also helped us to save. The sub-lease and sale of aircraft from July has delivered for us savings of $800 million every month.”