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National carrier, Kenya Airways, has warned the decline in the shillings is negatively affecting its operations.
KQ Chief Executive Allan Kilavuka on Tuesday said the carrier will incur up to Sh64.5 billion by the end of 2024 due to the bad forex impacts.
The CEO who appeared before the National Committee on Transport said the poor performance of the shilling to the dollar has negatively impacted on the airlines outstanding loans as well as the carrier’s financial operations.
The disruption, he noted, will make it near impossible for the airline to bounce back to profitability.
“A weakening Kenya shilling significantly increases the airlines financing and operating costs. I am 95 per cent confident that we will turn around the institution, but this is only possible if we deal with the debt that we have. If we don’t deal with it, this plan will not work,” Kilavuka said.
“We are very positive of a turnaround but the problem is the negative forex. We need to deal with the debt and that is why I'm saying we need to recapitalise. Once we do this, we will have a turn around.”
This year alone, the forex impact on loans will see KQ pay additional Sh2.1 billion if the dollar trades at the current rate of Sh151.86.
He further said unless the government intervenes and recapitalises the business to clear the outstanding Sh196 million loans, it will be impossible to return to profitability.
Since 2014 when the loan was borrowed to September, the airline paid off an additional Sh40.7 billion.
The dollar exchange rate in 2014 was Sh90.59 compared to Sh148.2 in September.
Kilavuka also told lawmakers that the depreciating shilling has occasioned Sh26.6 billion in terms of airlines operations and financial standings.
This is for the period between January and September 30 this year.
The CEO cautioned that should the dollar continue trading at Sh151.86 by end of the year, the airline will incur Sh5.5 billion translating to Sh32.1 billion in the current financial year.
Should the exchange rate climb to Sh178.88 by end of 2024, the CEO noted it will lead to negative forex impact of Sh21.6 billion translating to Sh64.5 billion.
“KQ’s legacy debt dampened the impressive operating results due to the huge forex losses, because of depreciation of Kenya shilling against the US dollar. These forex losses were primarily due to revaluation of the US dollar denominated loans and liabilities,” he said.
To reduce the loans, the CEO said the airline in support of the National Treasury, are in the process of obtaining a strategy Equity Partner to recapitalise the business.
The process, he noted, has started with the selection of financial adviser.
The financial adviser will be instrumental in coming up with investment material and valuation. The process will conclude in June 2024.
“The prevailing economic and financial situation in the country necessitated discussion between management and the government,” he said.
“The task of financing project Kifaru as initially conceived was deemed onerous and an alternative option of realising the same objective was considered. This led to the agreement on the sourcing of SEP to support capitalisation of KQ.”