KQ to receive another Sh35bn State bailout


The government will stop Kenya Airways (KQ) bailouts from next year as it moves to cut off the national carrier from exchequer support. FILE PHOTO | LUCY WANJIRU | NMG

Kenya Airways will get an additional State bailout of Sh34.9 billion to help the cash-strapped national carrier repay debts including to aircraft lessors, the Treasury has revealed.

In a letter to International Monetary Fund (IMF) managing director Kristalina Georgieva-Kinova Treasury Cabinet secretary Njuguna Ndung’u said the financial support is contained in the supplementary budget that will be tabled at the National Assembly before the end of January.

KQ, as Kenya Airways is known by its international code, has been going through financial turbulence that was exacerbated by international travel restrictions in 2020 by various governments to contain the spread of the Covid-19 pandemic.

This saw the airline relying heavily on State support, aggravating the government’s fiscal risks that had become pronounced due to the adverse effects of the pandemic.

The IMF, which had entered into a 38-month programme with Kenya to help it deal with its debt vulnerabilities, pushed for the restructuring of KQ as one of the conditions of the programme.

KQ is one of the State-owned enterprises that will receive extraordinary support from the government amounting to Sh37.3 billion in the upcoming mini-budget, with Kenya Power being allocated Sh2.35 billion of this amount.

“The balance will be allocated to KQ including assumed payments for debt service that will be supported by the government for guaranteed and unguaranteed debt, subject to agreements with the creditors,” said Prof Ndung’u.

The funds, the Treasury says, will help KQ repay some of the loans that are overdue to avoid default.

“GoK (Government of Kenya) will continue to support KQ financially in FY2022/23 to facilitate normalisation of overdue payments to prevent defaults for settlement of operating lessors’ arrears and completion of payments, as well as other working capital support,” he said.

Former Transport PS Joseph Njoroge had in June said the disbursement of the loan was on condition that KQ achieves set goals.

“KQ remains insolvent with the highest cost base among regional airlines even as it met 75 per cent of its targeted cost reduction in FY2021/22,” said IMF in its fourth review of the 38-month programme it has with Kenya.

As part of the programme, which will see Kenya receive Sh288 billion from the IMF, some State-owned enterprises will have to be restructured to become profitable and reduce their reliance on the exchequer.

Priorities of the airline’s restructuring plan, the IMF noted, include network optimisation, lease negotiation, staff rationalisation, and other cost management efforts.

“The airline has retired 16 loss-making networks and renegotiated some aircraft leases but faces challenges in rationalizing staff costs,” said Treasury.

As of November 17, 2022, KQ’s debt amounted to $835 million (Sh102.7 bn).

This includes all debts, loans, letters of credit facilities, and convertible equity amounts. Of this amount, US$688 million is guaranteed by the Government of Kenya.

As of end-October 2022, KQ’s payables amounted to approximately Sh44 billion out of which Ksh.24 billion is overdue.

These creditors include aircraft lessors, operation, and maintenance costs, landing and rental fees, fuel costs, rent, navigation, handling charges, and taxes.

KQ, which last recorded a profit in 2012, saw its net loss narrow to Sh15.8 billion last year from Sh36.2 billion the year before when travel restrictions hit operations hardest, including the grounding of its planes for months.

CS Njuguna noted that a lower disbursement from the government in Financial Year 2021/22, compromised the gains KQ had realized from negotiations of aircraft leases.

The government through the Treasury holds a 48.9 per cent stake in the airline and has provided KQ with tens of billions of shillings worth of shareholder loans in recent years.

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