Kenya Airways sinks deeper into losses

Kenya Airways (KQ) Headquarters in Nairobi on November 8, 2022. [Boniface Okendo, Standard]

National carrier Kenya Airways (KQ) said it expects to report an even bigger loss for the year to December 2022, compared to what it made in 2021.

The airline issued a profit warning over the weekend, saying it expects its earnings to be at least 25 per cent lower in the period ending December 2022, compared to a similar period the previous year.

KQ reported a loss of Sh15.88 billion in the year ending December 2021.

The airline said while it reported growth in revenues during the year, as the travel industry continued to recover, a weak shilling saw the carrier register foreign exchange losses that eroded gains it has recently made in reducing losses.

KQ said the weakening of the shilling over the past year had been considered in a reconfiguration of KQ's dollar-denominated loans in a financial restructuring the airline is undertaking.

"This announcement is based on the forecasted financial results of the group for the year ending December 31, 2022," said KQ Board Chairperson Michael Joseph in the profit warning Saturday.

"Although the company's performance would reflect an improved revenue position in the year, and in fact, is projected to post significantly improved operating results, despite the high fuel prices, the net earnings would be constrained by forex losses. The forex losses were occasioned by the novation of guaranteed US dollar loans as part of the ongoing financial restructuring programme."

"This means that the exchange rate differences, reported below the operating results and previously accumulated in the balance sheet reserves under hedge accounting treatment, will be released to the statement of profit or loss since the hedge instrument no longer exists. This is a one-off expected loss."

KQ in 2021 reduced its loss to Sh15.88 billion from the record Sh36.22 billion it had reported in the year to December 2020, with the improvement being on account of the reopening of airspaces globally after they had shut down to contain the spread of Covid-19.

The carrier, as was the case with the global aviation sector, felt the impact of the pandemic in 2020 when it registered a significant drop in revenues after nearly all operations were grounded.

KQ is still hopeful that even with the deepening of losses last year, it can still turn a profit by end of next year.

The carrier is also running out of options after the government said it would stop cash injections into the airline past December 2023.