Taxpayers to fork out Sh103b to bail out Kenya Airways, again

Cash-strapped Kenya Airways will once again get financial assistance from taxpayers.

KQ, as the airline is known by its international code, will see its debt of Sh102.8 billion paid by the State.

The move is aimed at helping the national carrier cruise through the financial turbulence that has for long characterised its operations, according to a country report by the International Monetary Fund (IMF).

“Guaranteed and unguaranteed debt, totaling $868.7 million (Sh102.8 billion) as of March 2022, are expected to be serviced by the Government and discussions are ongoing with KQ’s creditors,” says the IMF in its third review of the Sh276 billion programme.

The programme is aimed at helping Kenya tame its debt vulnerabilities by increasing revenue, cutting non-essential spending and restructuring some State-owned enterprises such as KQ so as to reduce their fiscal risks.

However, the Washington-based lender notes that the payment should come with some strings attached

“The mission urged the authorities to advance their loan agreement with KQ to ensure that financial support via the budget is effectively linked to commitments to deliver on KQ reforms,” says the lender. 

Strategic investments

KQ was allocated Sh36.6 billion to help with its reorganisation in the budget for the current financial year ending June next year as part of the Government’s strategic investments in public enterprises.

This will bring the total amount of capital injected into the troubled airline by the State to Sh63.2 billion after it was awarded Sh26.6 billion in the financial year ending June 2022.

The restructuring will lead to a major shake-up of the carrier, with some employees expected to be sent home as the loss-making company tries to grow its wings back and fly through the financial turbulence.

“Kenya Airways will be required to trim its network, rationalise frequencies of flights, operate a smaller fleet, and rationalise its staff complement,” said National Treasury Cabinet Secretary Ukur Yatani in his budget speech on April 7.

The national carrier, whose shares have been suspended from trading at the Nairobi Securities Exchange (NSE), has been in the red since 2012, hitting a record net loss of Sh36.2 billion in 2020 as the containment measures against Covid-19 ravaged international travel.

KQ is reported to have defaulted on payment of interest on a Sh25 billion State loan, with the airline seeking a waiver.

Between 2016 and 2020, the State has advanced KQ Sh35 billion, bringing the total loans to the airline to Sh98.2 billion.

Further, if the Sh85.2 billion State guarantees for loans taken by the airline by the end of June 2020 are added, as contained in its annual report, then taxpayers are staring at a possible liability of Sh183.4 billion should the firm default.