Kenya: National Airline Reduces Losses Through Deep Cost-Cutting

image Photo: Salaton Njau/The Nation

KQ’s outgoing chief executive, Mbuvi Ngunze, left, with chairman Michael Joseph at Crowne Plaza, Nairobi on May 25, 2017.

Deep cost-cutting helped Kenya Airways reduce its full-year net loss by more than half to Sh10.2 billion, showing some green shoots of hope for the national carrier, which is however beset by a flagging topline and wider erosion of shareholders' capital.

KQ, as the carrier is known by its international code, on 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 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, 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, an turnaround strategy for the airline, which includes interventions like balance sheet restructuring, disposal of aircraft and land and laying off of over 100 staff.

"We are seeing the first results of our investment in the turnaround," Mr Ngunze added.

KQ's bottom line benefited positively from a favourable exchange rate and hedging environment, which despite financing costs remaining high, helped KQ lower its "other costs" 49.6 per cent to Sh11.1 billion.

The airline, which is 29.8 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.

KQ 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 estimate with the major outstanding issue being completion of the balance sheet restructuring.

The turnaround plan has so far cost KQ Sh2.4 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.

Authors: All Africa

Read more http://allafrica.com/stories/201705260011.html