Kenya Airways (KQ) remains in turbulent waters as its search for a new strategic equity investor drags on, missing set mid-year deadlines.
The national carrier needs a new strategic investor to complete its ambitious restructuring under a project dubbed Kifaru, which primarily seeks to deleverage the business, infuse external aviation best practices and diversify the business.
The government was expected to issue a Cabinet approval of strategic options for the restructuring of KQ by the end of April this year as part of conditions of a multi-year programme with the International Monetary Fund (IMF).
The government directed the airline to engage a consultant to support the onboarding of an equity investor to inject capital into the business.
“The procurement of the consultant is in the final stage and should be completed by the end of December 2023 with the aim of closing the deal by the end of June 2024,” the IMF said in a January 2024 report.
Timelines to secure the new investor have, however, been extended to the end of the year, with KQ currently engaging a financial advisor to determine the level of capital required to steady the operations of the carrier.
‘’As far as becoming sustainable going forward, the only way is to get an additional capital injection, which is what we are seeking from a strategic equity investor and continue to perform considerably well, which is what we are demonstrating today,” KQ's chief executive Allan Kilavuka said on Monday.
KQ’s Achilles heel has been its negative shareholders’ equity, which shows that the airline’s debts exceed its assets, a sign of financial distress for the company.
The metric means that the shareholders of the company, who include the government at 48.9 percent, would receive nothing if the airline was declared bankrupt and forced to liquidate its assets.
As at the end of June 2024, KQ liabilities exceeded its assets by Sh123.5 billion with the outstanding obligations standing at Sh297.8 billion against an asset base of Sh174.2 billion.
KQ liabilities include key items such as borrowings, lease liabilities and deferred income tax.
The airline had disclosed borrowings of Sh148.1 billion as at the end of last year, including loans accruing to the government of Kenya and the African Export and Import Bank.
The borrowings largely relate to loans taken out to finance the purchase of aircraft, spare engines and pre-delivery payments for planes on order.
Earlier this year, the government converted KQ’s guaranteed debt into external commercial public debt as part of interventions to reduce the carrier’s debt burden.
While the Treasury has assumed payments of the facility, KQ is in return expected to repay the exchequer but in adjusted terms, including a new Kenya shilling-denominated loan with a longer repayment period.
The restructuring alongside local currency gains, which led to a revaluation of KQ’s foreign currency-denominated liabilities, helped the carrier post its first half-year earnings since 2013 with a net profit of Sh513 million, reversing a loss of Sh21.7 billion a year earlier.
In June, MPs ordered the national carrier to draw up a fresh recovery plan that would show how taxpayers would recoup billions of shillings wired to it over the years to keep the airline afloat.
KQ has, nevertheless, been weaned off exchequer support at present except for the servicing of its guaranteed debt and has not received any direct budget support this year.
Outside of tapping a new equity investor, disclosures from the IMF show that the government could consider KQ’s consolidation with other State-owned enterprises and the setting up of a new fund to manage the new entity.
“The model of the fund is meant to package both profit-making and loss-making entities hence sharing interest in the unattractive companies in pursuit of the attractive ones by investors,” the IMF added.
