KQ suffers Sh5.6b loss as top director resigns


Published on 06/06/2009

By James Anyanzwa and Fredrick Obura

Kenya Airways suffered a double blow as it posted a Sh5.6 billion pretax loss and a top director resigned. Mr Richard Nuttal, the airline’s commercial director, tendered his resignation on Thursday. Nuttal who joined the company one year after the exit of Mr Hugh Fraser, quit a day before the announcement of the financial results.

“He tendered his resignation on Thursday and the board accepted it,” Victoria Kaigai, the airline’s corporate communications manager told The Standard on Saturday, but declined to give details.

Sources, however, said the director was sacked after he differed with the management over the rationale of the fuel hedging process, that has hurled the airline into deep financial mess.

Heaped Misery

KQ reported a loss of Sh5.6 billion ($71.8 million) for the full year ended March 31, after its fuel hedge policy boomeranged, returning a loss of Sh1.37 billion from fuel derivatives and an unrealised hedge loss of Sh7.5 billion. Post-election violence in the first quarter of last year, high oil prices and the effects of the global downturn further heaped misery to the airline’s expected remarkable performance. This loss compares unfavourably with a revised profit before tax of Sh 6.52 billion in 2007. “The change in performance is basically attributed to fuel hedge costs” said Mr Alex Mbugua, the airline’s finance director, blaming the performance on decline of oil prices.” KQ has a fuel hedge policy where it has fixed the price buys until December next year.Like other airlines across the world, Kenya Airways was hit hard by last year’s record high prices of crude oil, which peaked at $147 a barrel in July, before retreat-ing this year on the global financial crisis.

“Although crude oil prices reduced in the second half year, most airlines did not realise the impact due to forward fuel hedge contracts that resulted in losses” the airline’s chairman Evanson Mwaniki, said.

Last Year

The International Air Travel Association, the global industry body, estimates that airlines made a combined loss of 680 billion last year and will make further losses of Sh376 billion this year. KQ share price fell by 12.3 per cent (Sh2.90) to Sh20.60 after the results announcement, before closing the day at Sh20.00 a share.

However, despite the dismal performance the airline’s board recommended a first and final dividend of Sh1.00 a share representing a total dividend payment of Sh462 million.

The initial indicators that the 2008/09 financial year was not going well for the carrier showed when the airline reported an 62.7 per cent drop in pretax profits to Sh1.05 billion.

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