KQ Marks a Decade in Losses, eyes Profit next Year

Kenya Airways (KQ) completed a decade in the red with a record Sh38.26 billion full-year loss, hurt by debt and skyrocketing fuel prices. This is the airline’s tenth consecutive loss.

The national carrier on Monday broke its own record for the largest loss from a listed company in the nation, underscoring the scope of the turnaround task ahead.

For the fiscal year that ended in December 2022, the airline more than doubled its loss, from Sh15.87 billion to Sh38.26 billion.

In the past ten years, the airline has had four different CEOs as the strategy changed from growing the fleet to shrinking it as the total losses reached Sh172.68 billion amid State bailouts.

Now the current CEO Allan Kilavuka says he sees the national carrier, which fell into insolvency in 2018 after an expansion drive left it with billions in debt, hitting break-even at the end of December and a profit by the end of next year.

“We are emerging. I am very excited about what we are doing. We have a journey to walk to 2024 but green shoots of change have started to show,” said Mr Kilavuka.

If the fete is successful, it will usher in something that has not been associated with the airline’s books since 2012, when it closed with net earnings of Sh1.66 billion.

Michael Joseph, the chairman of KQ, had a stellar career at Safaricom as the CEO and chairman of the telco, which grew into Kenya’s most profitable firm, and now finds himself in a company with the highest-ever loss in corporate Kenya.

The airline is drawing encouragement from an improvement in its underlying performance and other metrics such as a rise in customer numbers from 68 percent to 3.7 million and a 66 percent rise in turnover from Sh70.22 billion to Sh116.78 billion.

Mr Joseph, like Mr Kilavuka, is hoping for a miracle profit next year and insists that the record loss contains packets of progress, particularly the Sh18 billion one-time cost.

“This 2023 looks good and we hope to continue this way. We really expect that by the end of this 2023, we will be in a break-even from a financial point of view and hit profit level in 2024,” said Mr Joseph.

Mr Kilavuka stated that if the one-time cost and the more than doubling of fuel costs had not occurred, the airline would have generated Sh12.74 billion in operating profit and Sh2.68 billion in net profit in the fiscal year under review.

However, the airline still faces mounting debts, volatile fuel prices, and demanding pilots, in addition to the Sh108 billion negative equity that renders the airline technically insolvent.

The airline has liabilities worth Sh117 billion due in less than a year, as well as Sh159.7 billion in long-term liabilities. It is, however, counting on increased government support.

“The element that is still outstanding is the restructuring of the balance sheet which needs support from the Kenya government,” said Mr Kilavuka.

KQ’s net loss increased significantly due to the Sh18 billion finance cost that was passed through the income statement after the government took over the servicing of the airline’s $525 million (Sh69 billion) dollar-denominated debt after it defaulted on payment.

Costs increased from Sh86.4 billion to Sh155 billion, primarily due to an increase in fuel of 160 percent, or Sh26.91 billion.

Other direct operating costs increased by Sh12.4 billion as capacity increased.

Fuel costs accounted for 53% of direct operating costs in the year the airline had no hedge against sharp increases in commodity prices.

“Net financing cost increased by Sh23 billion because of a one-off transaction that was taken during the year pertaining to the takeover of a US dollar-denominated loan by the Kenyan government which converted the loan to Kenyan shillings,” said Hellen Mathuka, chief financial officer at KQ.

“The conversation required as a company to recycle the foreign exchange losses through the profit and loss accounting, having an impact of Sh18 billion.”

Mr Kilavuka said the airline recorded an improvement if you strip off the Sh18 billion that was passed through the income statement.

“The Sh18 billion is not a financial loss but a reclassification and that has a big impact on the results,” said Mr Kilavuka.