Government disburses additional KES 2.7 billion for Kenya Airways’ debt

In the three months leading up to September, Kenya’s National Treasury has disbursed an additional KES 2.7 billion to settle Kenya Airways’ (KQ) guaranteed debt. The financial commitment, inherited from the national carrier, includes KES 2.4 billion for principal repayments and KES 351.3 million for interest payments.

The Controller of Budget (COB) provided this information, emphasizing that this latest installment brings the cumulative exchequer payments on the KQ guaranteed debt to KES 13.4 billion, with the initial payment made in the quarter ending December 2022.

According to the COB report, during the first three months of the fiscal year 2023/24, a total of KES 2.7 billion was disbursed for Kenya Airways loans, comprising KES 2.4 billion for principal repayment and KES 351.3 million for interest payments. The decision to take over the debt, originally contracted in 2017 from the USA Export-Import Bank (Exim), was communicated to the International Monetary Fund (IMF) by the Treasury last year. This move aimed to facilitate better risk management for the national carrier, particularly in light of potential calls on the guarantee.

Despite repayment efforts exceeding KES 13.0 billion, Kenya Airways’ guaranteed debt has increased significantly by 13.4% since September of the previous year, reaching KES 87.4 billion from KES 76.97 billion. This surge is mainly attributed to the sharp depreciation of the Kenyan Shilling. The exchequer’s takeover of KQ’s debt, known as debt novation, is part of a broader restructuring initiative for Kenya Airways, involving additional capital injections by the state, cost-cutting measures, network optimization, and the establishment of key performance indicators for senior executives.

As of the end of September, the state’s total guaranteed debt stood at KES 170.94 billion, encompassing guarantees to KenGen and the Kenya Ports Authority (KPA) amounting to KES 31.45 billion and KES 52.07 billion, respectively. Notably, KQ’s guaranteed loans alone surpass the combined guarantees to KenGen and KPA. The government has also provided a KES 52 billion loan guarantee for Kenya Power.

While both KenGen and KPA are currently servicing their guaranteed debts, only exchequer payments on arrears cover loan facilities for Kenya Airways. KenGen’s guaranteed loans slightly increased to KES 31.49 billion by the end of September, compared to KES 31.1 billion at the end of June 2023. Conversely, Kenya Power’s guaranteed loans grew by three percent, reaching KES 52.0 billion from KES 50.5 billion by the end of June 2023.

For the 2023/24 fiscal year, the National Treasury has allocated KES 18.8 billion toward the payment of guaranteed debt, signaling the government’s commitment to managing and settling the financial obligations associated with these guarantees.