The National Treasury is seeking to restructure Ksh.57.4 billion worth of publicly guaranteed loans issued to national carrier Kenya Airways (KQ).
The amount covers part of KQ’s guaranteed debt principal as of the end of March this year.
The disclosure by the exchequer follows the conclusion of a restructuring action plan for the beleaguered airline which includes a loan arrangement and conditions by government for providing financial support to the carrier.
“The action plan includes clear KPIs, timelines and a reporting obligations and disbursement plan. Disbursements from the National Treasury to Kenya Airways will be conditional on progress and released only when there is clear and tangible progress towards pre-agreed targets,” noted the National Treasury.
Part of key actions in KQ’s restructuring process includes the trimming of the airline’s network, rationalizing of frequencies and fleet and addressing the company’s high cost structure.
The National Treasury is expected to provide direct budgetary support to clear overdue payment obligations, service other debt falling due that is not eligible for novation and cover upfront costs of restructuring.
“Guarantees on multiple credit facilities by local banks will remain in force. Negotiations for servicing of KQ’s guaranteed and unguaranteed debt are ongoing and are expected to be completed in FY 2022/23,” added the National Treasury.
Through supplementary budgets, the National Treasury handed KQ Ksh.20.3 billion in the 2021/22 fiscal year to support the broad-based restructuring of the airline.
In the new 2022/23 financial year, KQ has been allocated Ksh.30 billion to support initiatives including debt service.
As of March 31, KQ’s debt portfolio was estimated at Ksh.103 billion ($868.7 million) including all debts, loans, letters of credit facilities and convertible equity amounts.
In spite of trimming its losses by half in 2021, Treasury says the carrier continues to suffer from high costs relative to revenue earned.
“Despite a notable reduction in losses in 2021, thanks to an improvement in operating revenues, KQ was unable to stem the cash burn. As a result, its severe cash flow problems continue, resulting in its inability to pay lessors and creditors due invoices, and significant outstanding obligations,” the National Treasury added.
“The company had to negotiate moratoriums and waivers with lenders and lessors and has been dependent on cash injections from the budget. Even before the pandemic, this was negatively impacting KQ’s operations.”