Kenya Airways has reported a 60.9 per cent drop in its net loss for the 12 months ended March from last year’s Sh26.2 billion.
The apparent upturn was, however, dampened by a Sh10 billion shrinkage in its turnover to Sh106 billion.
The airline’s book value sank Sh9.2 billion more into the negative to Sh44.9 billion, reflecting erosion by years of losses and negative fluctuations on the carrier’s foreign currency-denominated loans.
Deep cost-cutting helped Kenya Airways #ticker:KQ reduce its full-year net loss by more than half to Sh10.2 billion, showing some green shoots for the national carrier that is, however, beset by a flagging topline and wider erosion of shareholders’ capital.
KQ, as the carrier is known by its international code, Thursday reported a 60.9 per cent drop in its net loss for the 12 months ended March from last year’s Sh26.2 billion.
The apparent upturn was, however, dampened by a Sh10 billion shrinkage in its turnover to Sh106 billion, while the airline’s book value sank Sh9.2 billion more into the negative to Sh44.9 billion, reflecting erosion by years of losses and negative fluctuations on the carrier’s mountain of foreign currency-denominated loans.
“Our operating costs reduced significantly due to the turnaround efforts. We posted an operating profit of nearly Sh900 million compared to a Sh4.1 billion loss last year,” KQ’s outgoing chief executive, Mbuvi Ngunze, said when releasing the results.
Operating costs dropped by Sh14.9 billion to Sh105.4 billion, with the biggest savings coming from lower fleet ownership costs following the offloading of several aircraft in the year.
KQ subleased three Boeing 777s and two Boeing 787s and sold two Boeing 777s, bringing fleet costs down by Sh14 billion to Sh15.5 billion.
The offloading was part of Operation Pride, the turnaround strategy for the loss-making airline, which includes interventions like balance sheet restructuring, disposal of aircraft and land and laying off of over 100 staff.
“Specifically, the company was able to significantly reduce the fleet costs as a result of taking out a lot of capacity. We are seeing the first results of our investment in the turnaround,” Mr Ngunze said.
KQ’s bottom line benefited positively from a favourable exchange rate and hedging environment which, despite financing costs remaining high, helped the airline lower its “other costs” 49.6 per cent to Sh11.1 billion.
The national airline, which is 29.8 per cent owned by the Treasury and 26.7 per cent by Air France-KLM, also booked Sh1.6 billion from the sale of land and aircraft parts such as spare engines.
The carrier closed the period with lower staff expenses as 288 workers exited the company — through retrenchment and natural attrition — leaving the employee count at 3,582.
Operation Pride, which is being implemented with the help of US consultancy McKinsey, is 72 per cent complete as per the carrier’s estimates, the major outstanding issue being completion of the balance sheet restructuring.
The turnaround plan, which has been going on for 15 months, has so far cost KQ Sh2.4 billion — an amount made up of retrenchment costs and consultant and lawyers’ fees.
Mr Ngunze, however, said that KQ’s investors “need not worry too much” about the company’s negative equity position, noting that airlines can find themselves in such a situation but still operate “provided you have cash.”
KQ’s total liabilities of Sh191 billion outstrip its total assets of Sh146.1 billion.
The widening negative book value, the CEO said, resulted from the latest loss and was made worse by currency fluctuations booked from its long-term (12-year) loans borrowed to acquire aircraft.
KQ expects the capital restructuring — which could see it take up about Sh60 billion in a mixture of debt and equity — to be completed in coming months, improving its book value and liquidity.
“We do not worry so much about the negative equity position but more about whether the airline is generating cash,” Mr Ngunze, who will stay on for two months to finalise the capitalisation, added.
“We are focused on the financial restructuring to reduce overall debt so that it matches the valuation of the company and so that we have the right liquidity to ensure that we meet our obligations.”
Despite the earnings having been boosted highly by cost cutting, KQ’s management is upbeat about the firm’s ability to make money from its core business and its financial future.
Despite a reduction in the airline’s fleet, passenger numbers grew by 5.4 per cent to 4.5 million, with the company expectant that new routes, additional frequencies, optimal ticket pricing will continue growing this and grow revenues.
Cash generated from operations remained relatively flat at Sh13.4 billion while the money directed towards financing activities shrunk by Sh8.3 billion to end the year at Sh2.2 billion.
This saw the company’s cash and cash equivalents grow by Sh4.4 billion to Sh9.2 billion.
“The results are really positive. We have gone through some really tough times but we are coming out. The efforts put in by the KQ management are starting to bear fruit in terms of our operations,” said Michael Joseph, KQ’s chairman.
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Note: The results are not exact but very close to the actual.
