Treasury makes U-turn on stopping Kenya Airways bailouts

The Treasury has made a U-turn on its pledge to end financial support to Kenya Airways (KQ) amid delays in securing a strategic investor for the loss-making national carrier.

KQ has disclosed that Treasury, the principal shareholder of the airline, has confirmed via a written commitment, that it will remain on standby to offer financial support past the December 2023 deadline it had issued mid-January last year.

“The government of Kenya has committed, through a letter of support, to continue providing the required financial support to the group and company to enable it (KQ) to implement its recovery programme and meet its financial obligations as and when they fall due, for at least the next 12 months from the date of approval of the annual financial statements for the year ended December 2023,” the airline says in its latest annual report.

The move is a departure from the earlier pledge in the draft budget policy statement 2023 indicating that the government would develop a turnaround strategy for KQ with a financing plan that “does not depend on operational support from the exchequer beyond December 2023.”

The fresh commitment to KQ means that taxpayer money will likely be spent on sustaining the operations of the national carrier that last returned a profit in 2012.

KQ has used the commitment to justify the decision to prepare the financial statements on a going concern basis despite the airline’s liabilities exceeding assets by Sh136.1 billion –a scenario that leaves it technically insolvent.

The change of tune comes at a time when the State’s search for a strategic investor to buy a significant stake in the airline and wean it off debts and subsidies continues without much progress.

Transport Cabinet Secretary Kipchumba Murkomen said mid-December last year the search for strategic partners for KQ topped the list of President William Ruto’s mission to Washington during the US-Africa summit.

“We are doing everything possible to ensure that we no longer subsidise the airline and that is why we are looking for a strategic partner,” said Mr Murkomen then.

KQ was allocated Sh36.6 billion in the current financial year, mainly for its reorganisation, as part of the State’s strategic investments in public enterprises. The allocation added to the Sh26.6 billion KQ received from the exchequer in the previous financial year.

Government shareholder loans between 2020 and 2022 were Sh41.27 billion. The three percent per annum interest loan was to enable the airline to recover from the impact of the Covid-19 pandemic and support the restructuring.

Last year, the obligation of servicing the entire government-guaranteed debt of $485 million (Sh63.2 billion) owed to Tsavo Aircraft Financing LLC was transferred from KQ to the government following the signing of a novation agreement. The State started servicing the facility in October 2022.

“This loan has been treated as an additional Government of Kenya shareholder loan of Sh58 billion to the airline with similar terms as the existing shareholder loans,” states KQ.

KQ says accrued interest on loans owed to the government hit Sh5.3 billion at the end of last year but the airline sought and was granted waiver and deferral on the unpaid interest on the shareholder loans.

The International Monetary Fund (IMF) in 2022 disclosed that the airline’s guaranteed and unguaranteed loans amounting to $868.7 million (Sh113 billion) as of March 2022 “are expected to be serviced by the government and discussions are ongoing with Kenya Airways’ creditors.”

The government had also told the IMF that it was going to offer the airline $473 million (Sh61.6 billion) as direct budgetary support to clear overdue payment obligations and cover the upfront costs of restructuring.