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Company That Makes Sh1.3B Loss Monthly And Still Flies High

How the national carrier manages to remain operational should freak even management experts

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National carrier Kenya Airways (KQ) in January issued a profit warning, saying it expects to report an even bigger loss for the year to December 2022, compared to what it made in 2021. The airlines performance is keenly being awaited by the market since it has been recording-setting in the red territory over the past few years.

A profit warning is issued when a listed company expects  earnings to be at least 25% lower and, for KQ’s case for the financial year ending December 2022, profitability is expected to fall remarkably.

In 12-months to December 2021, the National carrier narrowed its net loss by 56.58% to Ksh15.8 billion from a net loss of Ksh36.2 billion in 2021 when corona restrictions hit the travel industry. “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 issued late January.

This means Kenya Airways, listed at the securities exchange and whose slogan is The Pride of Africa, made a loss of Ksh1.3 billion every month for the period – and still flies high, lifted by cash injections from government, of of its key shareholders. Meanwhile, with the January 2023 profit warning this loss will balloon to record figures once the results are out.

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The airline said while it reported growth in revenues, a weak shilling resulted in foreign exchange 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.

“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,” Michael Joseph said. “The forex losses were occasioned by the novation of guaranteed US dollar loans as part of the ongoing financial restructuring programme.”

This means 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, however, is a one-off expected loss.

KQ in 2021 had reduced its loss to Ksh15.88 billion from the record Ksh36.22 billion it had reported in the year to December 2020, with reopening of airspaces globally after Covid-19 restrictions were lifted.

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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.

The airline said while it reported growth in revenues, a weak shilling resulted in foreign exchange losses.

In the 2021 period, total revenue jumped to Sh70.22 billion that was lifted by alternative sources such as air charter services. In 2022, KQ trimmed its half-year loss to Sh9.9billion from Sh11.5billion posted in the same period last year, attributed to increased revenues.

Likewise, the Group’s total revenue grew by 76 percent to Sh48.1 billion from Sh27.4 billion in the review period. Income growth was boosted by a rise in passenger revenue by 109 percent as well as cargo 18 percent.

“The Board and Management is happy that the results of the restructuring plan are bearing fruit and continue to be focused and committed towards undertaking several key strategic initiatives to help the company become profitable in 2024,” said Mr Joseph.

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KALU MENGO
KALU MENGOhttp://www.businesstoday.co.ke
Kalu Mengo is a Senior Reporter With Business Today. Email: [email protected]
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