KQ half-year loss shrinks to Sh4.8bn on deep cost cuts
Kenya Airways CEO Mbuvi Ngunze (right) with Acting Finance Director Dick Murianki during an investor briefing on October 27, 2016. PHOTO | DIANA NGILA
What you need to know:
The airline’s decision to sell and sub-lease aircraft reduced its fleet ownership costs by Sh4.6 billion to Sh8.5 billion, six-month results released yesterday show.
National carrier Kenya Airways has cut its half-year net loss by more than half to Sh4.8 billion on the back of deep cost-cutting intended to stabilise the cash-strapped airline.
The airline’s decision to sell and sub-lease aircraft reduced its fleet ownership costs by Sh4.6 billion to Sh8.5 billion, six-month results released yesterday show.
This improved its after-tax loss for the first half ended September by 60 per cent from last year’s Sh11.95 billion.
The carrier, known as KQ by its international code, further booked savings from lower global fuel costs that also helped shrink direct costs by Sh2 billion to Sh32.8 billion.
These savings compensated for KQ’s 3.5 per cent dip in revenue to Sh54.7 billion (mainly due to lower passenger income) as well as a Sh2 billion hit the airline booked from the ongoing restructuring plan that has included staff exits.
“We have sub-leased three wide body aircraft (Boeing 777-300s) in the period, returned some leased ones, and sold two Boeing 777-200 planes,” said Mr Dick Murianki, KQ’s acting finance director.
“As a consequence, we made lease savings of about Sh2.2 billion. Sub-leasing of the wide bodies happened towards the end of the second quarter and the full impact will be seen in the full-year results.”
Despite KQ reducing its fleet size by seven aircraft, the number of passengers it carried rose by 4.2 per cent to 2.2 million.
The aircraft did more rotations to a higher number of destinations, a factor that negatively impacted its on-time performance.
KQ’s earnings from an improved number of clients was dented by currency and fuel factors, with passenger revenue reducing by Sh1.8 billion to Sh46.7 billion and cargo revenue dropping by a fifth to Sh3.7 billion.
“Cargo thrives in the environment of big aircraft and their removal constrained capacity. On top of this, commodity prices are also depressed at the moment,” said Mr Murianki.
KQ’s fleet rationalisation exercise is part of an extensive restructuring plan that will see the company make Sh14.6 billion from asset sales to add to Sh20 billion in extra revenue.
During the period, the publicly-listed firm benefited from a one-off cash injection of Sh1.7 billion from the sale of assets — including land and aircraft — as well as Sh9.8 billion bridge loan from government.
The airline used the bridge loan, which is on lent from Afrexim bank, to retire some long-term loans as part of efforts to improve the firm’s dire cash flow position.
In the six months to September, the airline’s finance costs increased by 7.9 per cent to Sh3.75 billion. The publicly listed carrier took a hit of Sh251 million from fuel derivatives, an improvement from the Sh1.3 billion which it recorded during a similar period last year.
KQ announced that is currently winding up its fuel hedging contracts but added that they will get into new agreements “deliberately” when the risk situation demands it.
The company’s total assets currently stand at Sh158.6 billion, its total liabilities Sh197.4 billion, leaving the national carrier in a negative equity position of Sh38.9 billion.
“One of our key goals of Operation Pride is to improve our results and we are on course,” said Mbuvi Ngunze, KQ’s chief executive officer.
“We continue reviewing our operations to ensure we remain competitive in the market. We now operate a leaner but efficient airline.”
