The Treasury’s decision to exercise caution regarding Kenya Airways’ #ticker:KQ (KQ) request for a Sh7 billion bailout augurs well for the aviation industry. The national carrier not only needs to survive the current Covid-19 ravages, but also requires a long-term solution to restore it to its long lost glory as the Pride of Africa
Yet in its bailout application to the Treasury, KQ had stated that it requires the money for the maintenance of its grounded planes, payment of staff salaries and settlement of utility bills like security, water, electricity and parking fees.
These are all valid reasons for the airline to seek financial redress from the State, especially given that KQ is now unable to meet these basic financial obligations due to the shackles placed on it by the travel restrictions imposed to contain spread of the coronavirus disease. Arguably, without these curbs, the carrier would not need to ask the Treasury to loosen its purse strings and bail it out.
But instead of the quick-fix aid that KQ is seeking, Treasury Secretary Ukur Yatani says the State is keen on a long-term solution anchored on nationalisation of Kenya Airways.
He argues, and we agree, that the carrier’s financial troubles go beyond the corona-related woes. Billions of shillings of taxpayer have been spent in recent years on bailing out KQ with no sign that it is soon levelling from the financial nosedive it has been on for years now.
Nowadays bailing the firm out feels like throwing good money after a bad course and the State can’t afford to do that in these tough economic times.
That, however, is not to say that the State shouldn’t run to the aid of the airline. The company is a strategic asset to the nation that can still return to profit-making provided that it gets the fundamentals right. These are what Mr Yatani is alluding to in his push for a long-term solution. But he should bear in mind that unless the government fixes such short-term problems KQ faces now such as staff salaries, airplane maintenance and utility bills, his long-term solution may soon have no platform to take off from.
To keep KQ from plunging further, the Treasury has two options. It can either use taxpayer funds to bail it out, tying the funding to the company hitting specific benchmarks to safeguard taxpayer interests. Alternatively, it can act as a guarantor for a KQ commercial loan, which the airline can then repay as soon as the restrictions are lifted and it is back to the skies.