The government has agreed to guarantee the massive debt Kenya Airways owes creditors subject to approval by the National Assembly.
In a deal that will free more cash to help turn around the airline recovering from the biggest loss in Kenya’s corporate history, the Cabinet has also agreed to convert government loans to equity.
A brief following a Cabinet meeting indicated the government will guarantee $750 million (Sh77.51 billion) that KQ owes local and international lenders, enabling them to extend the tenure of the expensive loans.
The national carrier owes Export-Import Bank of the US about $525 million (Sh54.26 billion), while debt to local banks is about $225 million (Sh23.25 billion).
KQ said the proposed contingent guarantee is “in exchange for material concessions to be provided as part of the financial restructuring, which would secure future funding of the company”.
No fresh cash is required from the government in the plan.
Treasury CS Henry Rotich reiterated that Kenya Airways was a national asset that needs government support.
“As a major shareholder, we are keen to secure the airlines future and ensure it has a healthy liquidity profile and remains operational,” Rotich said. “The proposed restructuring of the airline will generate concessions from all stakeholders and the re-capitalisation of the business.”
The government holds 29.80 per cent stake in KQ, while KLM controls 26.73 per cent. The remainder is held by private investors through shares which trade at the Nairobi Securities Exchange and cross-listed on the Dar es Salaam Stock Exchange and Uganda Securities Exchange.
KQ chairman Michael Joseph, while making a plea for parliament to approve the deal, rallied creditors, principal shareholders and other stakeholders to support the restructuring plan.
This, he added, will position the airline “for a new era of sustainable growth via a deleveraged balance sheet and a healthy liquidity profile”.
The airline cut full-year net loss for period ended March 31 by 61.10 per cent to Sh10.20 billion while total operating costs dropped 12.37 per cent to Sh105.38 billion.
Revenue, however, dropped 8.51 per cent to Sh106.28 billion due to reduced capacity, although passenger numbers grew 5.4 per cent to a record 4.46 million. KQ rebounded to an operating profit of Sh897 million in the period from Sh4.09 billion loss a year earlier.
“With a healthier liquidity, and at no cash cost to the Government, the airline will be in a better place to continue with its operations serving Kenya and the region at large,” Joseph said.
Kenya Airways has arguably the largest network in Africa, but needs full backing of authorities and citizens to compete with the “highly subsidised” Ethiopian Airlines, Joseph said on May 25.
“Kenya Airways plays a huge role in the economy of Kenya and we have to remember that people come and put their headquarters in Nairobi because of Kenya Airways.
They come here because they can get around, they can fly to many, many destinations in Africa,” he said. “We have to be very sure that we support our airline and we continue to push our regulators and government to support Kenya Airways as a viable operation.”
Transport CS James Macharia said KQ plays a “major role in driving the country’s competitiveness, and diplomacy and what we have settled for is the best interest not only of the airline but the country at large.”