Treasury seeks MPs nod for fresh Sh1bn Kenya Airways bailout

Kenya Airways Embraer 190 airplane. 

Photo credit: File | Pool

Kenya Airways will get Sh1 billion in financial support from the Treasury for the financial year starting July if lawmakers approve recommendations of the Select Committee on Budget and Appropriations of the National Assembly.

The Ndindi Nyoro-led committee has asked lawmakers to approve the fresh bailout for the national carrier to partly fund its recurrent needs through its report of the Estimates of Revenue and Expenditure for the financial year 2024/25 to be debated and approved later this month.

The reduced funding appears to be in line with the government policy of ending bailouts for cash-strapped State-controlled entities in favour of restructuring.

The Treasury, as a principal shareholder in KQ, has been forced to continue offering financial support in a U-turn move to its earlier pledge to end bailouts on the back of a protracted process to get a strategic investor for the loss-making airline.

The funding is, however, significantly reduced from tens of billions of shillings that taxpayers have injected into KQ annually in past years to keep it afloat on the back of deep cash flow challenges, which were exacerbated by the Covid-19 pandemic-induced travel curbs in 2020.

The airline has failed to service loans, which were guaranteed by the government, prompting the takeover of the multibillion-shilling liability this financial year.

Taxpayers spent Sh17.4 billion in the nine months to March 2024 to service a $641.49 million (about Sh83.4 billion under prevailing dollar conversion rates of Sh130 per unit) loan it took in 2017 to buy seven aircraft and an engine.

The loan, with a repayment period of 12 years, was originally provided by US lenders Citi Bank and JP Morgan before US export financier Private Export Funding Corporation (Pefco) took it over with the US Exim Bank and the Kenyan government as guarantors.

The Treasury’s guarantee covered $525 million (Sh68.3 billion) which it later converted to an external commercial public debt that is now being serviced by the taxpayers.

The funding proposal has come at a time when the Debt and Privatisation Committee of the National Assembly has demanded that KQ management submit a fresh recovery plan that will wean it off State bailouts.

A string of losses has forced KQ to cling on to the Treasury for financial support bailouts.

“Within 30 days of the adoption of this report, Kenya Airways Plc should submit to the National Assembly, a realistic and comprehensive report on its turn-around strategy and measures in place to replenish the public resources utilised in the payment of the guaranteed debt, cash bailouts, and expenses relating to the debt assumed by the National Assembly,” the committee wrote in the report tabled in the House.

The airline narrowed losses to Sh22.6 billion in the year ended December from Sh38.2 billion in the previous year.

The Treasury had earlier indicated that the loan repayments by the government on behalf of KQ would be recovered through a subsidiary loan agreement between the government and the airline, as stipulated by the Public Finance Management Act 2012.

However, the Public Debt and Privatisation Committee has raised a red flag that the taxpayer risks losing out on the repayments following the conversion of the guarantee to mainstream debt, which would be contrary to the provisions of the Public Finance Management Act.

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