NAIROBI, Kenya, Jun 5 – National carrier Kenya Airways (KQ) has reported a Sh4.1 billion net loss for the year ended March 2009.
KQ Finance Director Alex Mbugua attributed this performance to the implementation of the new fuel hedging accounting rules which requires that derivatives are accounted for in the profit and loss account statements.
“We have had to take a huge charge of Sh7.5 billion in our income statement and this is really as a result of the huge dive in the oil prices in July (2008)compared to where we were hedged at. This has happened to all airlines; it’s not peculiar to Kenya Airways,” he told an investor briefing.
The loss represents a 189.2 percent decline in profits compared to the Sh4.5 billion profit after tax posted in 2008.
Hedging is a risk management tool that is used by airlines to cushion themselves against erratic fuel prices. In its (hedging) policy which ends in December 2010, KQ has hedged 51 percent of its total fuel volumes while the rest is purchased at the market price. Fuel costs account for 30 to 40 percent of the total operating costs.
Mr Mbugua however sought to assure stakeholders that the adjustments do not have any implications on their cash flow and that the airline’s fundamentals were still strong despite the loss.
“The cash flows will only be affected when we consume the fuel and if we will be out of the money that is the only time we will settle with the counterparties,” he explained.
A positive note for the company however is that fuel consumed in the future will not be factored in the statement as the hedge represent future consumption. This, Mr Mbugua pointed out, would enable KQ to report positive figures in the coming years.
Chief Executive Officer Titus Naikuni said the board would continue to review the effectiveness of the hedging policy going forward and decide whether to do away with it or not.
