The Treasury has reversed course on its commitment to end its financial support to Kenya Airways (KQ), due to delays in finding a strategic investor for the loss-making national carrier.
KQ revealed that the Treasury, the airline’s largest shareholder, had confirmed through a written commitment that it would remain on standby to offer financial support beyond the December 2023 deadline it had set at the mid-January last year.
“The Government of Kenya has committed, through a letter of support, to continue to provide the required financial support to the group and the company to enable it (KQ) to implement its recovery program and to fulfill its financial obligations as they fall due, for at least the next 12 months from the date of approval of the annual accounts for the financial year ending December 2023,” the airline indicates in its latest report annual.
The move departs from the earlier commitment in the Draft Fiscal Policy Statement 2023, according to which the government would develop a recovery strategy for KQ with a financing plan that “does not depend on operational support from the Treasury beyond December 2023.”
The new commitment to KQ means taxpayer money will likely be spent to support the operations of the national carrier which last made a profit in 2012.
KQ used this 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.
This change in tone comes at a time when the state’s search for a strategic investor to acquire a significant stake in the airline and wean it of debt and subsidies continues without much progress.
Transport Cabinet Secretary Kipchumba Murkomen said in mid-December last year that finding strategic partners for KQ was high on the list of President William Ruto’s mission to Washington during the US summit. -Africa.
“We are doing everything possible to no longer subsidize the airline and that is why we are looking for a strategic partner,” Mr Murkomen said at the time.
KQ received Sh36.6 billion in the current financial year, mainly for its reorganization, as part of the state’s strategic investments in state-owned enterprises. The allocation is in addition to KQ Sh26.6 billion received from the Treasury in the previous financial year.
Government loans to shareholders between 2020 and 2022 amounted to Sh41.27 billion. The loan at three percent interest per annum was to enable the airline to recover from the impact of the Covid-19 pandemic and support restructuring.
Last year, the obligation to repay the entire government guaranteed debt of $485 million (Sh63.2 billion) owed to Tsavo Aircraft Financing LLC was transferred from KQ to government following the signing of a novation agreement. The State started servicing the installation in October 2022.
“This loan was treated as an additional shareholder loan from the Government of Kenya of Sh58 billion to the airline with similar conditions to existing shareholder loans,” says KQ.
KQ says interest accrued on loans owed to government reached Sh5.3 billion at the end of last year, but the airline requested and was granted a waiver and deferral on unpaid interest on loans from shareholders.
The International Monetary Fund (IMF) revealed in 2022 that the airline’s secured and unsecured loans amounting to $868.7 million (Sh113 billion) as of March 2022 “are expected to be repaid by the government and discussions are underway with Kenya Airways’ creditors.
The government had also told the IMF that it would offer the airline $473 million (Sh61.6 billion) in direct budgetary support to clear arrears and cover initial restructuring costs.