The volatility of the shilling against the US dollar and other world currencies is impacting negatively on the turnaround strategy of Kenya Airways (KQ).
This is despite the national carrier’s recent achievement of reporting an operating profit of Sh998 million after six years.
Managing director Allan Kilavuka while appearing before the Transport and Infrastructure Committee of the National Assembly on Tuesday, said with the limited support from the government, especially after the Covid-19 pandemic and the growing foreign currency-denominated debts, KQ has no alternative but to source for a strategic investor.
Documents presented to the committee by Mr Kilavuka show that as of September 31, 2023, KQ’s indebtedness stood at Sh196.4 billion. These KQ’s legacy debts have dampened Kenya Airways’ operating results due to the huge forex losses brought about by the depreciation of the Kenyan currency against the US dollar.
“These forex losses were primarily due to revaluation of the US dollar-denominated loans and liabilities,” Mr Kilavuka told the committee.
He, however, noted that to get out of the financially difficult position, the national carrier is looking at a capacity growth of 23 percent in 2025 and 16 percent in 2026 as well as the stabilisation of the Kenya shilling in the short to medium term.
“We are hopeful of a turnaround however, the biggest threat is the forex losses, the reason we are looking for a strategic investor,” said the KQ boss.
Mr Kilavuka notes that assuming that the exchange rate of Kenya shilling against the dollar will be Sh151:1 by December 2023, KQ will have booked an additional negative forex impact estimate of Sh5.5 billion.
According to Mr Kilavuka, the depreciation of the Kenya shilling against the US dollar has negatively impacted the airline’s financial standing.
For instance, the negative forex impact on KQ operations already recorded in its books of account between January and September 30, 2023, is Sh26 billion.
This prompted the committee chairman Mr George Kariuki to ask; “do you think you would still be our national carrier in the coming years if the government doesn’t bail you out?”
“We can survive but it will be a difficult survival,” responded Mr Kilavuka.
A breakdown of the KQ’s largely dollar-denominated debts includes a balance of Sh62.7 billion in the Tsavo facility that was procured from the US Exim bank in 2014 to buy six dream liners.
There is also Sh17.6 billion, a balance of the proceeds acquired from five banks to buy Embraer planes, Sh33.4 billion from local banks, Sh59 billion from the government of Kenya in advances and monies paid on behalf of KQ with Sh23.7 in outstanding supplier overdue.
In 2014, the Kenya shilling was trading at Sh90.59 to the US dollar and as of September 30, 2023, the local currency was trading at Sh148 against the dollar.
