The Treasury offered Kenya Airways a further Sh10 billion in a secret bailout despite having publicly stated it would reject the national carrier’s request for funds to avoid collapse amid the effects of the coronavirus pandemic.
A supplementary budget tabled in Parliament on Tuesday revealed Kenya Airways received Sh8 billion directly from the Treasury and Sh2 billion from the Transport ministry to ease the effects of the virus that has obliterated global demand for travel.
This marks a departure from the Treasury’s earlier position that it would reject a bailout for Kenya Airways in favour of a long-term solution anchored on nationalisation of the airline.
The national carrier needs money for the maintenance of grounded planes, payment of staff salaries and settlement of utility bills like security, water, electricity and parking.
Without State aid, the airline risked running out of money in the near future against the background of unease among banks about lending to African carriers.
The Treasury did not indicate when the billions of shillings were offered Kenya Airways or if the funds were in the form of equity or a loan from the government, which is in talks to buy out minority investors, including lenders and Air France-KLM.
“Sh8 billion is for Kenya Airways to enable the airline to sustain basic operation during the Covid-19/post-Covid-19 pandemic,” Treasury Cabinet secretary Ukur Yatani said in the revised national budget.
“Sh2 billion for cash injection for the Kenya Airways to cushion against the impact of the Covid-19 pandemic which grounded its operations.”
Running into bankruptcy
Bloomberg News last year listed KQ as one of the airlines that risked running into bankruptcy unless they got government intervention within the next two months.
The airline has already laid off hundreds of staff, slashed workers’ pay and reduced its network in the race to remain afloat. It also plans to offload undisclosed assets.
First-half pre-tax losses for the period to June were Sh14.36 billion as Covid-19 derailed travel and slashed revenues. This compared to a Sh8.56 billion loss in the same period a year earlier.
Turnover in the review period plummeted 48 percent to Sh30.21 billion.
Kenya Airways resumed domestic flights in mid-July after the government cleared local air travel, and international flights were restarted on August 1.
The airline was struggling before the coronavirus outbreak, posting a 2019 loss of almost Sh13 billion.
A law to pave the way for the nationalisation of the airline, which had been proposed before the pandemic, is being reviewed by Parliament.
Mr Yatani last year said that the Treasury was keen to pursue a turnaround under the plan to nationalise Kenya Airways, which was approved by lawmakers in July 2019.
Kenya wants to emulate countries like Ethiopia which run air transport assets — from airports to fuelling operations —under a single company, using funds from the more profitable parts to support others.
Under the model approved by MPs, Kenya Airways will become one of four subsidiaries in an aviation holding company.
The others will be Jomo Kenyatta International Airport, an aviation college and the Kenya Airports Authority, which will operate all other airports.
The State bailout comes less than a year after Kenya Airways received a Sh5 billion loan from the Treasury, a move that increased the national carrier’s indebtedness to the government — its top shareholder.
The government owns 48.9 percent of KQ shares.
In 2017, the State converted Sh16.8 billion worth of loans it had provided to the company into shares as part of the airline’s debt restructuring. The government also holds another Sh7.7 billion worth of convertible debt.
KQ has warned current and prospective investors that its proposed corporate restructuring, including nationalisation, could hurt the value of their holdings.
Among other terms, shareholders will be waiting to know the price the government will be offering to buy them out.
Despite dropping to Sh3.83 a share before its suspension from trading at the Nairobi bourse, KQ’s share price represents a major premium given that its liabilities exceed its assets.
The losses have seen the company’s negative equity widen to Sh38.9 billion in June from Sh2.4 billion in December 2018, underlining the airline’s capital crisis.
KQ’s problems have been linked to a mix of increased competition, mismanagement and a previous debt binge that continues to weigh heavily on its balance sheet.