Kenya airways risks losing assets to banks if reforms delay

Overseas banks have carried out an inspection of Kenya Airways’ aircrafts in preparation to repossessing them should it delay to strike a restructuring deal with local banks, the national carrier said yesterday.

In a civil application filed at the Supreme Court of Kenya last month, KQ wants three banks opposed to the debt restructuring process to be compelled to change their mind because it is ‘just and necessary to safeguard the rights and existence’ of the airline.

In an  affidavit sworn by KQ’s acting group finance director, Dick Murianki, the airline blames Equity Bank, Ecobank, and Jamii Bora for delaying the restructuring process by filing cases in the High Court and the Court of Appeal.

 “I confirm that the failure to determine this application and to set aside the orders granted to the first applicant (Equity Bank) will mean that the airline will in all likelihood imminently cease to operate as the financial accommodation it has been receiving from its creditors was on the basis of the restructuring being completed by end of August 2017,” explained Mr Murianki.

Court papers

Equity’s action, KQ claims, has delayed the restructuring plan and is jeopardising the entire Sh226.5 billon ($2.2 billion) owed to various creditors.

The airline, in court papers filed before the apex court, also claims that the money owed to 12 local commercial banks and the interest of other 17,000 investors is at stake if KQ was to sink, especially the overseas lenders who had offered security to the planes and were prepared to repossess its planes.

“Whilst these lenders are supportive of the company’s restructuring proposal, these secured lenders have made preliminary preparations such as airline inspections to repossess such aircraft should the implementation of the company’s restructuring be delayed” KQ claimed in the court papers.

According to the airline’s annual report for the financial year ended March 31, 2017, total debt stood at Sh142.34 billion. KQ owes Citi Bank and JP Morgan Sh78.9 billion, while African Export-Import Bank lent them Sh23.4 billion. Barclays Bank PLC follows with a credit line of Sh3.14 billion.

The three overseas banks gave KQ loans to fund aircraft acquisition, spare engines, and per-delivery payments for ordered airlines.

Become insolvent

For the purpose of holding collateral for the financiers, KQ says in its end year report that the planes are registered in the name of special entities whose equity is held by the security trustees on behalf of the financiers.

Equity Bank of Kenya leads the three banks that have stood in the way of the restructuring plan that was to see their loans converted into equity. Others opposed to the plan are Ecobank of Kenya and Jamii Bora Bank.

The three have filed applications before High Court and Supreme Court. Murianki says the three risk losing $60.9 million (Sh6.3 billion), while the eight consenting banks will lose $159 million (Sh16.4 billion) should KQ become insolvent.

KQ adds that it faces imminent collapse, with catastrophic consequences to the economy including job losses, creation of an air transportation crisis, loss of Kenya’s status as regional transportation hub, and systemic disruption in the banking sector.

KQ has told the apex court that its collapse will have ramifications for East African countries’ stock markets.

In addition to Equity, seven of its other creditors - KCB, CBA, I&M, NBK, DTB, Cooperative bank and NIC - are all listed on Nairobi Securities Exchange.

Further, KQ alleges that although Equity filed the case before the court it did not explain the predicament faced by the carrier and all the creditors.