Kenya Airways seeks investor as it battles forex impact

Kenya Airways (KQ, Nairobi Jomo Kenyatta) is seeking a strategic investor as it continues to battle foreign exchange volatility negatively impacting its turnaround strategy despite its recent KES998 million shilling (USD6.6 million) operating profit, according to Chief Executive Officer Allan Kilavuka.

Briefing the Parliamentary Transport and Infrastructure Committee on October 24, he said with limited support from the government and growing foreign currency-denominated debts, the majority-state-owned carrier has no alternative but to seek a strategic investor, reported Business Daily Africa.

Kenya Airways continues to struggle with debts of KES196.4 billion (USD1.3 billion) as of September 31, 2023, according to documents presented by Kilavuka to the committee. He explained that the depreciation of the Kenyan shilling against the US dollar has led to substantial forex losses, primarily due to the revaluation of US dollar-denominated loans and liabilities.

He said the airline aims to achieve a capacity growth of 23% in 2025 and 16% in 2026, while also stabilising the Kenyan 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,” Kilavuka said.

He said the negative forex impact on operations from January to September 30, 2023, has already reached KES26 billion (USD172.7 million), and further depreciation of the Kenyan shilling could result in an additional negative forex impact of KES5.5 billion (USD36.5 million) by December 2023. The airline’s largely dollar-denominated debts include a KES62.7 billion (USD416.5 million) facility with EXIM Bank (United States of America) to purchase B787-8s. Others include a KES17.6 billion (USD117 million) loan balance to five banks to buy ERJ 190-100ARs, a KES33.4 billion (USD222 million) facility from local lenders, KES59 billion (USD392 million) in government advances, and KES23.7 million (USD157 million) in overdue supplier payments.

Without government intervention, Kenya Airways’ future could be in jeopardy, Kilavuka said in answer to a question from a member of parliament. “We can survive, but it will be a difficult survival,” he said.

According to a government statement issued after the meeting, committee members set out to find answers on four key issues:

• Kenya Airways’ projected financial health for the next three years;
• the airline’s current debt status in light of the government’s guarantees and financial support;
• the impact of the depreciating shilling against the dollar; and
• strategies in place to improve operational viability.

During his presentation, Kilavuka expressed optimism that Kenya Airways would return to profitability in the 2024 financial year, driven by a 56% increase in group revenue to KES75 billion (USD498 million) and a 43% growth in passenger numbers to 2.3 million – representing a 131% gross profit improvement.

Legislators questioned the CEO about previous financial shortcomings and sought assurances regarding continued performance improvement. Committee chairman George Kariuki assured the airline’s management of the committee’s commitment to supporting policy enactment and addressing issues like capacity dumping and suggested engaging the Cabinet Secretary for solutions.