Following Kenya Airways’ default on repayment of a Ksh63.7 billion loan from the United States Exim Bank, which highlighted the airline’s financial difficulties, the government would assume responsibility for the loan.
A decision to have the government assume the $525 million debt it had guaranteed to KQ after defaults were authorized by the Cabinet, according to information from the National Treasury. The loan, which has a 10-year term that runs through June 2028, was guaranteed by the state in 2017.
To purchase seven aircraft and one engine, the carrier borrowed a total of $841.6 million (Ksh102.17 billion) from the US Exim Bank. However, because of cash flow issues brought on by the COVID-19 interruptions, the airline was unable to properly cover the debt. Due to this, the state was compelled to assume 62.4% of the airline’s debt, which it had previously guaranteed.
“Kenya Airways defaulted on both the guaranteed portion of the loan amount as well as the non-guaranteed portion,” Treasury said.
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The government is currently attempting to replace the flawed contract with a new one by June 2023, at which point it will begin servicing the debt on behalf of KQ.
“KQ has experienced cash flow challenges in the past which were exacerbated following strict Covid -19 containment measures that cut down business operations and global travels,” it said.
According to the government, KQ will be reimbursed for the loan repayments it made on its behalf through a subsidiary loan agreement between the two parties that complies with the Public Finance Management Act.
The default on the loan repayment of Ksh67.2 billion is the latest KQ violation.
With interest due in December 2021 on a Ksh25 billion loan from the government to Kenya Airways, the interest has been extended. The airline put off making any payments on the two loans, which it received from the state for a total of KSh11 billion in 2020 and another KSh14 billion in 2021.
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As part of requirements established by the International Monetary Fund to save state-owned firms from inefficiencies, the airline is currently undergoing a restructuring program. Some of the measures include personnel reductions and a review of aircraft frequencies and routes.
KQ hired the US-based consultancy firm Seabury Consulting earlier this year to advise it on a financial restructuring and revitalization strategy. This comes after the government gave up on its aspirations to nationalize it. Of KQ’s shares, the government holds 48.9% of the stock.
New Transport Cabinet Secretary Kipchumba Murkomen disclosed intentions to restructure KQ by dividing it into subsidiaries for freight, passengers, charter services, and drones while testifying before the National Assembly’s Committee on Appointments for vetting.
