Kenya Airways (KQ) failed to pay interest on a Sh25 billion loan drawn from the government to help it navigate Covid-19 disruptions, pointing to the debt distress for the national carrier.
The airline discloses in the latest annual report for the period to December 2021 that it failed to honour interest payment on the loan, which was issued in two tranches to save it from collapsing.
“As of 31 December 2021, the group and company had not made payments of interest on the government of Kenya loan as set out in the loan agreements. The loan agreements require payment of interest by the 20th day of June every year,” says the airline.
The default prompted KQ to apply for a waiver from the government to defer the unpaid interest on the shareholder loan, a request that was granted.
KQ skipped the interest payment during the period the disbursement of the State bailout to start the restructuring process, which was delayed.
The government is the principal shareholder in KQ with a stake of 48.9 per cent and has classified the airline as a strategic asset for the country, especially for its role in transporting exports.
The State loaned KQ Sh11 billion in 2020 and advanced the second tranche of shareholder loans amounting to Sh14 billion last year to enable the airline to sustain operations during and after Covid-19 disruptions.
The loan is repayable after five years and attracts interest at the rate of three per cent per annum, with the accrued interest being payable by June 20 each year.
KQ now has less than three months before the next interest payment falls due.
The airline managed to narrow its full-year net loss by 56 per cent to Sh15.88 billion from Sh36.22 billion in 2020, helped by cost-cutting and recovery in revenues.
KQ also failed to honour debt covenants on various other loans, including that from the African Export-Import Bank, Citibank NA and JP Morgan NA.
The loans, drawn for the purchase of aircraft and funding of pre-delivery deposits for aircraft, require that the airline ensure unrestricted cash to revenue ratio and debt service cover ratio.
KQ applied for and received approval for a waiver on the conditions, saving it from having to classify the loan from long term to one that is repayable in under a year.
In total, the airline closed last year with borrowings amounting to Sh107.09 billion, a growth from Sh92.54 billion in the preceding similar period.
National Treasury Cabinet Secretary Ukur Yatani on Thursday hinted at job cuts at the airline as it embarks on a Sh147 billion multi-year restructuring programme that includes taking over debts.
Mr Yatani said the airline will be required to trim its network, rationalise frequencies of flights, operate a smaller fleet, and rationalise its staff numbers.
The airline in 2020 lost 1,123 employees with 561 being through resignations or voluntary early retirements.
Last year, it also lost a further 365 staff through the same route to close the year with 3,544 employees.