Economy

State plans Sh146bn KQ bailout, drops takeover

kq

Passengers disembark from Kenya Airways’ maiden flight to Kisumu International Airport on July 15, 2020. PHOTO | ONDARI OGEGA | NMG

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Summary

  • Treasury Secretary Ukur Yatani has said the government will take over Sh93.4 billion of national carrier Kenya Airways’ debt owed to multiple suppliers.
  • It will also give the airline Sh53.4 billion in direct budget support in the fiscal year that ends in June 2022 as well as the subsequent one, making it the largest corporate bailout.

The Treasury will offer Kenya Airways #ticker:KQ a further Sh146.9 billion bailout amid delayed recovery from a travel slump following Covid-19 in financial support that will see the State drop the plan to nationalise the airline.

Treasury Secretary Ukur Yatani has said the government will take over Sh93.4 billion of national carrier Kenya Airways’ debt owed to multiple suppliers.

It will also give the airline Sh53.4 billion in direct budget support in the fiscal year that ends in June 2022 as well as the subsequent one, making it the largest corporate bailout.

The national carrier needs money for the maintenance of grounded planes, payment of salaries and settlement of utility bills like security, water, electricity and parking as well ease the effects of the virus that has obliterated global demand for travel.

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 bailout comes as the State dropped the favoured long-term solution for the ailing Kenya Airways that was anchored in nationalisation of the airline—which was approved by lawmakers in July 2019 and would have led to the delisting of the airline from the Nairobi Securities Exchange (NSE).

“As part of putting KQ on a sustainable footing, GoK will take over US$827 million of KQ’s debt. In addition, in FY2021/22 and FY2022/23, US$473 million will be provided as direct budgetary support to clear overdue payment obligations and cover the upfront costs of restructuring,” Mr Yatani said in a December 2 letter to the International Monetary Fund (IMF).

“The authorities do not intend to nationalise the carrier and are considering appropriate mechanisms to protect the Exchequer’s financial interests during the restructuring process,” the CS said in a letter that IMF made public yesterday. This marks a departure from the Treasury’s earlier position to pursue a turnaround under the plan to nationalise Kenya Airways.

A law to pave the way for the nationalisation of the airline, which had been proposed before the pandemic, is before Parliament.

Kenya wanted 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 would become one of four subsidiaries in an aviation holding company.

The others would be Jomo Kenyatta International Airport, an aviation college and the Kenya Airports Authority operating all other airports.

The government owns 48.9 percent of KQ shares.

Trade in the company’s shares on the Nairobi Securities Exchange has been suspended since July last year as the carrier works on a restructuring plan.

Now, the State is keen on pushing for the restructuring of the carrier on the back of the multi-billion shilling bailout.

“KQ will be required to trim down its network, rationalise frequencies of flights, operate a smaller fleet, and rationalise its staff complement,” Mr Yatani told the IMF. Like other airlines, Kenya Airways has seen its passenger business severely hurt by Covid-19 travel curbs.

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