Sh45b shareholder loan: Inside Kenya Airways advanced investor talks

Kenya Airways seeks fresh investors as critics question whether its Sh45bn bailout can deliver lasting growth. [File, Standard]

Kenya Airways is at an advanced stage of discussions with prospective investors and will issue an Information Memorandum (IM) subject to regulatory approvals, the national carrier said on Tuesday, as it seeks to recapitalise after years of losses.

The airline said the IM is part of preparations to support future capital-raising and onboard strategic partners. It did not disclose the identity of potential investors, the size of the planned raise, or a timeline.

The statement came in response to questions about its turnaround plan after the President William Ruto Cabinet approved a Sh45.15 billion shareholder loan and the conversion of Sh122 billion of existing government loans into equity-qualifying instruments.

CEO Habil Waswani reiterated in response to The Standard queries that the measures aim to restore the airline from negative to positive equity, improve creditworthiness, and support capital-raising initiatives.

"As previously disclosed, the shareholder loan and the proposed balance-sheet restructuring are complementary measures aimed at addressing the Company's recapitalisation, liquidity, and balance-sheet requirements in support of Kenya Airways' long-term turnaround programme and return to sustainable profitability," Waswani said.

However, the response did not address key concerns raised by analysts and internal managers, who told The Standard that the bailout prioritises maintenance of ageing aircraft and balance-sheet repair over fleet modernisation and network expansion.

"Beyond what has already been disclosed in the public announcement, the Company is not in a position to comment on specific allocations relating to fleet modernisation, network expansion, or other future investment plans," Mr Waswani said.

The Information Memorandum marks a key step in a fundraising process that Kenya Airways has been developing for months, according to company statements.

The airline has previously indicated it needs significantly more than the $350 million government facility to achieve sustainable operations, those people said.

According to people familiar with the airline's internal planning, KQ estimated 18 months ago that it needed approximately $500 million to become sustainable, while $1 billion would allow for fleet expansion and profitable growth. Those figures have since increased, the people who spoke anonymously said.

In June 2026, Board Chairman Kiprono Kittony said the airline was seeking at least $1.5 billion (Sh194.4 billion) in fresh capital to fund its long-term turnaround strategy, targeting completion by the first quarter of 2027, according to remarks he made at the airline's Annual General Meeting.

Kittony told shareholders at the airline's 50th Annual General Meeting that the board intended to run an "open, transparent process" informed by the IM, after which it would determine whether the capital should come through equity, debt, an airline strategic partner, or local and foreign funding, according to his remarks.

The airline initially slowed its fleet acquisition programme in February 2026 after geopolitical tensions and rising fuel prices increased uncertainty, according to company statements.

Then Acting CEO George Kamal said at the time the airline had a "very robust plan" but moved the next phase to 2027, targeting a fleet of 60 aircraft by 2030 and 100 by 2035, according to his remarks at the time.

The Ruto Cabinet approval on October 9 comprised two related measures, according to a company statement.

The first is a $350 million shareholder loan, disbursed in tranches under National Treasury oversight, with a repayment period of up to 10 years and the possibility of conversion into equity, the statement said.

The second is the in-principle conversion of approximately Sh122 billion in existing government loans, plus accrued interest, into an equity-qualifying tradable instrument, the statement said.

Waswani said the conversion is intended to restore the company from its current negative equity position to a positive equity position and support planned capital-raising initiatives.

"The objective is to strengthen the Company's balance sheet by restoring it from a negative equity position to a positive equity position, improving creditworthiness, and supporting planned future capital-raising initiatives and the onboarding of suitable strategic partners and investors," he told The Standard.

The proposed conversion is not an immediate cash injection equivalent to the value of the existing loans, but a planned restructuring of government debt subject to corporate, shareholder, regulatory and transaction approvals, according to the company.

KQ did not concede or indicate the bailout falls short.

The airline reported a loss after tax of Sh16.1 billion for the first half of 2026, widening from Sh12.2 billion in the prior period, according to its financial statements.

Revenue rose 9 per cent to Sh81 billion despite a 9 per cent reduction in capacity, with cabin factor improving by 4 percentage points, the statements showed.

The loss was driven primarily by a 32 per cent increase in fuel costs, with jet fuel accounting for approximately 32 per cent of total operating expenses and 52 per cent of direct operating costs, according to the company's disclosures.

Total operating costs increased by 14 per cent, the disclosures showed.

As of June 2026, KQ's liabilities exceeded assets, leaving negative equity of Sh147.9 billion, according to its financial statements.

The Information Memorandum is expected to provide prospective investors with detailed financial and operational information about the airline, its turnaround strategy, and the terms of the planned capital raise, according to the company.

Waswani said the IM reflects the airline's commitment to engaging investors on opportunities that support long-term growth and sustainability objectives.

"As part of the next phase of growth, KQ is at advanced stages of engaging prospective investors and will issue an Information Memorandum in due course, subject to the necessary approvals," he said.

The process is intended to support future capital-raising initiatives while positioning the airline for sustainable long-term growth, the company said.

Kenya Airways said any material developments will be communicated to shareholders and the market through appropriate regulatory channels.

The implementation of the measures remains subject to completion of corporate, shareholder, regulatory and transaction approvals, the company said.

Deepak Dave, a risk adviser with Advisory Capital, had earlier poked holes in the KQ plan in an interview with The Standard.

"Sadly, this is a paper shuffling exercise that does little to improve the Airline's operational leverage or business strategy," Dave said. "The GoK (Government of Kenya) continues to show appropriate commitment, though it has little choice, and perhaps that will help unlock some financial flexibility, but the core issues are not going to be addressed this way."

His comments appeared to echo the growing concern that the KQ priorities, from the much-needed bailout, do not constitute a growth strategy.

Senior managers and former executives who also spoke to The Standard on condition of anonymity said the spending plan does nothing to lower seat-mile costs, adjust route pricing models, or acquire newer, fuel-efficient long-haul jets to compete with regional rivals.

"The spending plan is totally uninspiring because it does nothing to lower seat-mile costs, adjust route pricing models, or acquire newer, fuel-efficient long-haul jets to take the fight to Ethiopian Airlines," said one airline insider who requested anonymity.

Critics pointed out that the Sh45.15 billion loan is effectively a high-priced repair job, restoring the status quo rather than building an airline for the future.

The Sh122 billion debt-to-equity conversion, while essential for balance-sheet health, provides zero liquid cash to fund network expansion or fleet modernisation, a senior manager said.

Managers are drawing uncomfortable parallels with other state-owned carriers that received massive bailouts but ultimately collapsed or were forced into drastic downsizing because the funding prioritised maintenance and balance-sheet repair over commercial growth.

South African Airways absorbed over Sh1 trillion in bailouts over more than two decades, primarily to cover operational losses and restructure debt.

The airline continuously bled market share to fast-scaling African rivals and was eventually forced into business rescue, downsizing its fleet dramatically.

Alitalia received more than Sh1.4 trillion in state support across successive emergency loans and equity restructurings before being permanently liquidated in 2021.

The Italian carrier's capital was repeatedly consumed by high operating costs from an ageing fleet, while it lost market share to low-cost competitors.

Air India spent decades trapped in a state-funded survival cycle before its eventual privatisation.

The Indian government pumped over Sh580 billion into the carrier under a state-mandated turnaround plan, with the vast majority earmarked to pay off legacy aircraft loans and fund heavy maintenance for grounded planes.

Because the capital injections left no budget for aggressive network expansion, Air India kept losing market share to agile private competitors like IndiGo.

Taxpayers essentially funded a holding pattern until the state was forced to sell the debt-laden carrier to the Tata Group.

Malaysia Airlines received Sh170 billion in government support under a radical restructuring. Despite the bailout, the airline recorded massive financial losses for consecutive years because the plan did not solve its core commercial vulnerabilities.

Analysts say the plan's shortcomings are thrown into sharp relief by the contrasting strategies of regional competitors.

Ethiopian Airlines continues to expand aggressively, acquiring new Airbus A350-1000 and Boeing 787-9 aircraft as part of its "Vision 2035" growth strategy.

Kenya Airways, by contrast, is spending its capital on returning grounded planes to service. As of June 2026, its liabilities stood at approximately Sh328.2 billion against assets of Sh180.3 billion, leaving negative equity of Sh147.9 billion. The airline reported a Sh16.1 billion loss after tax for the first half of 2026, widening from Sh12.2 billion the prior year.

"The Cabinet did well. The management plan does not inspire confidence," said a former chief executive who spoke on condition of anonymity. "There is a difference between survival and revival. This plan is survival."