Kenya Airways back at Treasury for Sh5b bailout

Kenya Airways has gone back to the government for a bailout. The airline said it has secured a Sh5 billion commercial loan from the National Treasury to service some of its aircraft engines and streamline operations.

At the same time, the listed loss-making national carrier announced looming changes in its operations and corporate structure. The looming shake-up comes a day after the appointment of Allan Kilavuka as chief executive to replace Sebastian Mikosz, the Polish expat unable to turnaround the airline and left before his first term in office lapsed.

In a disclosure to the Nairobi Securities Exchange, KQ Chairman Michael Joseph said the loan, acquired on Wednesday, was intended to complete an engine overhaul of its Embraer 190, its largest fleet and also boost working capital.

SEE ALSO: KQ Board appoints acting Chief Executive Officer

The cash injection will cater for the overhaul of 11 Embraer engines which is required every eight years in order to uphold high levels of safety and maintain reliability and planned network schedules.

“As an airline, we need to be efficient across our operations but more importantly across our fleet. The Embraer fleet is our largest and is the networks’ workhorse. We also plan on undertaking refurbishments on our two Boeing 737-700 aircraft. The airline commits to prudent utilisation of the funds to ensure value for money,” said Joseph.

The new loan adds to the numerous instances where the government has come to the aid of the airline. Last year, Treasury said it had forgiven a Sh24 billion debt the airline had taken over the previous three years.

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\And in April last year, the ministry disclosed to Parliament that it had taken a Sh20 billion loan from Eastern and Southern African Trade and Development Bank (TDB) to repay another loan from Africa Export-Import (Afrexim) Bank that had fallen due.

Treasury also converted some of its debts to equity during a restructuring that KQ undertook in 2017, increasing its stake to 48.9 per cent from an earlier 29 per cent.

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Joseph added that the listed airline was in discussions with the government – its majority shareholder – for a possible restructuring of the operations and corporate structure of KQ.

“KQ is also in discussions with the government with respect to collaboration between KQ and other stakeholders in the Kenyan aviation industry, including a possible restructuring of operations and corporate structure,” said Joseph.

Strengthen the fleet

On Thursday, the airline said it had appointed Kilavuka as CEO. He serves as the chief executive of KQ’s low cost subsidiary Jambojet and starts work on April 1 and all eyes are on him to steer the turnaround started by his predecessor. 

Kilavuka said Kenya plays a vital role in the aviation industry in Africa and the capital injection would aid KQ operations and strengthen the fleet.

SEE ALSO: KQ issues profit warning

“As a strategic national asset and key driver of Kenya’s economic development and GDP growth, it is important that the airline continues to operate optimally. It is on this premise that this year, we identified six key areas of focus which are: improving our customer’s experience, reducing costs and wastage, strengthening operational efficiency, stabilising the organisation, growing our profitability and managing relationships with our stakeholders,” said Kilavuka.

MPs in July last year, voted to nationalise the airline as a way of saving it from mounting debts, meaning the government will buy out other shareholders.

Local banks, through KQ Lenders Limited 2017 own 38.1 per cent, KLM owns 7.8 per cent and the balance held by retail investors.

KQ has been on a loss-making streak and posted a Sh7.5 billion loss for the year ending December 2018.

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Kenya AirwaysTreasuryKQMichael Joseph