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Kenya Airways may lose a KES 310m deposit it made with Boeing Corporation for aircraft purchases after the expiry of the preservation period made the deposit non-refundable. The airline, which has made losses for ten years, has set aside the deposit as an amount to cover an expected liability for failing to purchase the undisclosed planes. Deposits made for plane purchases are non-refundable if a carrier fails to buy the planes.
The airline had plans to buy new planes worth billions of shillings to grow its business, but years of loss-making and a balance sheet with negative equity have made it difficult to proceed with the purchases. The airline is pursuing the option of extending the preservation period for the plane orders to save the deposit. If Boeing refuses to extend the validity of the option, the airline will have to write off the KES 310m provision, which will further hurt its bottom line.
Read: Kenya to Pay Sh3 bn to Export-Import Bank for Due KQ Loan
At the end of 2022, the airline carried KES 3.7bn in deposits for leased aircraft, while the company reported a refund of KES 3.24bn after terminating the lease for a Boeing 777-300 plane. The airline is also set to terminate the lease for its other two Boeing 777-300 aircraft that are subleased to Turkish Airlines, which will save it between KES 3.3bn and KES 4bn. The savings will be recognized after deducting the termination penalties due to the company that leased the planes to Kenya Airways.
Kenya Airways has not made additional aircraft purchases in the past few years after running into financial headwinds and has instead leased out planes and terminated some leases to contain costs. A decade ago, the airline was acquiring new planes from Boeing regularly as part of its Project Mawingu. The plan intended to cement Kenya Airways’ strategy to connect African travelers to the outside world through its Nairobi hub. The plan stalled after the airline fell into losses and eventually negative equity, forcing it to rely on regular government bailouts to keep afloat.
Read: Kenya Airways Needs to Improve on Operating Efficiency
In 2022, the airline doubled its net loss from KES 15.87bn in 2021 to KES 38.26bn. A rise in net loss was mainly due to a KES 18bn finance cost that was passed through the income statement after the government took over the servicing of KES 70bn dollar-denominated debt. The airline was forced to pass through its profit and loss account the resulting exchange losses once the government converted the loan from dollars to shillings. The debt is now being carried as a shareholder loan from the government on Kenya Airways’ books.
Due to the one-off nature of the financing cost, Kenya Airways said it was optimistic of returning to profitability by 2024. The airline saw its total revenue increase by 66% to KES 117bn as passenger numbers rose by 68% to 3.7 million, and cargo business uplift increased by 3.5% to 65,955 tones. Total operating costs rose 59% to KES 122.4bn, with direct operating costs increasing by 94% on increased operations and huge global fuel price increases throughout the year.
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