KQ's aircrafts lease cost up 42% on weak shilling

Kenya Airways known internationally as KQ  spent Sh2.1 billion more on leased aircraft as the shilling dropped by 20 per cent against the dollar in the first six months of the year. 

The airline's half-year financial results released on Tuesday shows it spent Sh7.04 billion on owners of its fleet up from Sh4.96 billion same period last year, translating to an increase of 41.8 per cent. 

The shilling has dropped by 20 per cent in value against the dollar, closing Wednesday's trading at a new low of Sh145.5. 

The national carrier's current fleet consists of 32 planes with a collective average age of 13.5 years old.  Of these, the latest are nine Boeing 787-8, whose mean age is 8.5 years old. 

It attributed the biggest half-year loss of Sh21.7 billion to heavy forex losses and a pile-up of debt that are frustrating its turnaround plan. 

Even so, it recorded an impressive 120 per cent growth in operating profit from a loss of Sh5 billion reported in 2022 to Sh998 million in 2023. 

According to the managing director and  chief executive Allan Kilavuka, the legacy debt and the devaluation of the Kenya shillings against major currencies are two concerns that continue to hold back the airline. 

"The airline's improved performance was negated by a Sh17 billion impact on foreign exchange losses on monetary items, loans and leases, giving rise to a loss before tax of Sh22 billion,'' Kilavuka said. 

The depreciating shilling had a larger impact on the airline's debt repayment, which grew significantly from Sh573 million in the first half of 2022 compared to Sh10.9 billion in the period under review. 

In general, the airline's costs soared to Sh22.8 billion, a 360 per cent increase from Sh4.9 billion recorded in a similar period last year.

Forex losses consumed Sh15.3 billion of the total finance costs, accounting for 20.6 per cent of total operating costs which stood at Sh74.1 billion, nearly wiping out all the revenues the airline made. 

A weaker shilling to the dollar has seen KQ incur a Sh18.9 billion hole in its books and is likely to suffer further as the shilling continues to tumble, with experts projecting it to trade at 150 units against the greenback by the end of the year. 

"This year, the shilling to dollar exchange peaked at a high of Sh140 and it is heading towards Sh150 by the end of the year. This has a significant impact on our results particularly when it comes to foreign exchange losses,'' Kilavuka said. 

He added that the devaluation of the shilling has a significant negative impact on the firm's financials as a majority of transactions are carried out in the major foreign currencies.

"This has, in turn, an impact on our overhead costs, which increased by 22 per cent," Kilavuka said. 

The Group's revenue grew to Sh75 billion, recording a 56 per cent increase compared to the same period last year.

The operating improvement was underpinned by a growth in the cabin factor to 76.1 per cent, with an increase in passenger numbers of 43 per cent to 2.3 million. 

Despite these, the airline reported the highest half-year loss in more than a decade.

The loss further hurt its balance book, with liabilities worth Sh124.8 billion falling due in under a year and a further Sh176.8 billion in long-term liabilities.

The airline has made losses totalling Sh112 billion and last year, it reported the worst full-year loss of Sh38.2 billion.