Kenya Airways may need Sh60 billion bailout, says National Treasury CS Rotich

Loss-making Kenya Airways, which has been hit by a slump in tourism in the African country, may require Sh60.6 billion ($500-600 million) bailout, Henry Rotich, Finance Cabinet Secretary has said.

The carrier, part-owned by Air France-KLM, has not made a profit in three years and sunk deeper into the red in the year through March with a pre-tax loss of Sh29.7 billion ($294 million). Debts also climbed and shareholder equity turned negative.

The losses were mainly driven by a drop in visitors to Kenya following frequent Islamist militant attacks, at a time when the carrier had taken on debt to buy new planes.

Rotich told Reuters that the exact size of the bailout would depend on a turnaround plan being prepared by McKinsey and Seabury consultants.

“We are looking at between $500 and $600 million (Sh50 and Sh60 billion) or thereabouts,” he said by phone.

“This report is not yet out and as soon as we get it and we interrogate it and we feel comfortable with it, then we will know the actual numbers that the experts recommend.”

Audit report

Rotich said he expected the consultants to complete their report “within a short period of time.”

Kenya Airways is one of the biggest carriers in Africa, offering vital transport links on the continent, which despite fast economic growth lacks good rail and road networks in many areas.

The airline told investors last week that it had sought a $200 million bridging loan from Cairo-based African Export-Import Bank (Afreximbank).

The Government, which holds a 29.8 per cent stake, agreed a Sh4.2 billion shareholder loan to Kenya Airways in May.

Rotich said the Government could convert the loan into equity at a later date, adding that it would work with other key shareholders to rescue the airline.

“We want to work with other principal shareholders and others to see how to deal with equity and other loans that will be required to capitalise the company,” he said.

Air France KLM has a 26.73 per cent stake in the carrier. International Finance Corporation (IFC) is the other major shareholder.

Chris Kirubi, a shareholder in the airline who did not disclose how many shares he owns, said the Government had to step in to save the airline due to its strategic nature.

“There is no Kenya without Kenya Airways,” he said last week.

Until its problems of the past few years, the carrier had been hailed as a model of successful privatisation after its listing in 1996 turned it into a profitable company.

KQ’s share price is trading at its lowest levels since 2003 after shedding 22.5 per cent since the carrier reported its annual loss.