Will The Pride of Africa survive the headwinds!

By Sylvester Mwaringa

The Export-Import (Exim) Bank has slapped the National Treasury with a default notice for an overdue Sh57.77 billion loan. A call-up of the loan technically means that the lender can demand full repayment of the debt on fears of a borrower’s future ability to make payments.

A heavy financial hammer has been firmly pounding at Kenya Airways’ coffin and is perhaps on its final nails. The lack of a solid rescue plan for Kenya Airways has only added to its financial distress, causing taxpayers further losses and making the airline less attractive to both suppliers and investors.

The beginning of the End

The lion’s share of Kenya Airways’ bad debts sparked 12 years ago when they took a facility loan from CitiBank & JP Morgan, US – based lenders.

The Private Export Funding Corporation (PEFCO) took up the defaulted loan at Sh64.6 billion ($525 million), which was guaranteed by Exim Bank and in turn guaranteed by the Government of Kenya. The loan, which was for the purchase of seven aircraft and one engine, now stands at Sh57.77 billion.

Dr. Chris Kiptoo, the Treasury Principal Secretary, told Parliament that the Exim Bank handed in the notice after Kenya failed to remain up to date with payments of the loan. He illustrated how during the guarantee the exchange rate was at Ksh84 to a dollar, but is currently at Ksh125.2 to the dollar.

“Now we don’t have enough headroom to pay, but what is important is to pay,” he acknowledged.

This comes a few days after the debut 2022/23 Supplementary budget indicated that the Kenya Kwanza government will allocate Ksh20 billion to the struggling carrier. Appearing during the scrutiny of the supplementary budget no.1 of 2022/23, Dr. Kiptoo said the cabinet had initially approved Ksh34.9 billion, but had slashed the amount by Sh10 billion.

Other woes include a Ksh4.6 billion debt to Kenya Airports Authority; a Ksh377.5 million increase from June 2021 in a report by Auditor General Nancy Gathungu. “An amount of Ksh570 million is also owned by Kenya AirFreight Handling Limited, a subsidiary company of Kenya Airways Limited,” Ms Gathungu stated.

These charges by KAA to airlines facilitate parking, noise, emissions, landing and take-off among other things. This indicates that the carrier has continuously been allowed to operate without paying some basic fees at airports in Kenya.

“The Committee recommends that the Cabinet Secretary for the National Treasury should intervene and have the amount owed to the KAA by the KQ settled,” said the National Assembly’s Public Investment Committee in a report tabled in the House in June 2022.

The KAA had been previously engaging KQ directly on the debt question.

As of November 2022, KQ – as known by the international call sign – had a summed debt of Ksh104.4 billion. This comprises all loans, debts, aircraft lessors, operation and maintenance costs, letters of credit facilities and convertible equity amounts.

Kenya Airways has not recorded a profit since 2012, reporting a Ksh9.8 billion loss in August 2022; a better score from the Ksh11.48 billion loss it recorded in a similar period a year earlier. The cash-strapped carrier halted all its loan payments in 2020 when travel restrictions were imposed to control the spread of Covid-19.

The Turn-Around plan

In a letter to the International Monetary Fund (IMF) in December 2022, the Government agreed to novate the then Ksh59.7 billion loan to the national debt.

Treasury Cabinet Secretary Prof. Njuguna Ndung’u assured that the financial support will be included in the recently released Supplementary budget.

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 for the programme. Priorities of the restructure 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 rationalising staff costs,” Prof. Ndung’u noted.

The government agreed to fund KQ on condition it achieved set goals and the exchequer would start winding up financial support to the cash-strapped carrier, ending the perennial bailouts it has been providing.

“To support the aviation industry, the government will develop a turnaround strategy for Kenya Airways. A critical plank of this strategy will be a financing plan that does not depend on operational support from the exchequer beyond December 2023,” said the Treasury.

Dr. Kiptoo, told the Parliament that the government has been undertaking a KQ restructuring programme named “Project Kifaru”, that has since cost taxpayers Ksh16.3 billion to date.

The loan repayment done on behalf of KQ by the State shall be recovered through a subsidiary loan agreement between the government and the airline as per the requirements of the PFM Act, 2012.

In December 2022, President Ruto met top executives of Delta Airlines on his American trip, where he lodged the government’s bid to sell its entire 48.9 percent stake in Kenya Airways. “I’m willing to sell the whole of Kenya Airways Plc,” the head of state told Bloomberg News during the Washington trip for the US-Africa Leaders’ Summit. “I’m not in the business of running an airline that just has a Kenyan flag, that’s not my business.”

This also comes amidst a separate plan that will see Kenya Airways and South African Airways start a Pan-African airline by this year, following the signing of a Strategic Partnership Framework in November 2021.

The talks were initiated by former President Uhuru Kenyatta and his South African counterpart Cyril Ramaphosa.

During his State visit to Kenya this year, Mr. Ramaphosa assured President William Ruto that the plans of forming the airline remain on course.


Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.