Kenya Airways gets a Sh36.6b bailout as restructuring looms

The entrance to some of Kenya Airways’ offices in Embakasi, Nairobi. [Boniface Okendo, Standard]

Treasury has allocated cash-strapped Kenya Airways Sh36.6 billion to help with its reorganisation. In the Budget for the upcoming 2022-23 financial year, KQ will get the money as part of government’s strategic investments in public enterprises. This brings 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 current financial year ending June.

In his Budget statement for the next financial year starting July, National Treasury CS Mr Ukur Yatani said the money would be used to help KQ rebound, noting that the airline “is facing severe cash flow constraints following global lockdowns triggered by the Covid-19 pandemic.”

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. I will be proposing a budget allocation to meet the restructuring costs,” said Mr Yatani in his speech on April 7.

The bailout comes amidst revelations that KQ 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, then taxpayers are staring at a possible liability of Sh183.4 billion should KQ default.

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.

The airline has since cut its after-tax losses to Sh15 billion after governments around the world lifted the restrictions on movement.

KQ is one of the corporations that the government, as part of the 38-month arrangement it has with the International Monetary Fund, is expected to restructure in what is aimed at reducing the State’s exposure.

Mr Yatani said Treasury had since conducted a health check of selected State-owned enterprises, excluding Kenya Airways, which face the largest financial and fiscal risks.

The audit revealed a cumulative liquidity gap of Sh383 billion over the next five years.

“This gap is expected to be covered by undertaking specific policy interventions to improve efficiencies, reduce costs and increase revenue,” he said.

Another company that was expected to receive a government bailout was Kenya Power, to help it reduce tariff charges to electricity users.

However, the power distributor missed out on the Sh36.9 billion bailout from the National Treasury.

An additional Sh300 million has been set aside as subsidies to financial institutions.