Treasury seeks MPs nod for new Sh1bn KQ bailout

KQ plane

A Kenya Airways plane at Eldoret International Airport in Uasin Gishu County on March 25, 2024. 

Photo credit: Jared Nyataya | Nation Media Group

What you need to know:

  • The National Treasury has been forced to continue offering financial support to KQ.
  • The airline has failed to service loans, which were guaranteed by the government.

Kenya Airways will get Sh1 billion in financial support from the Treasury for the financial year starting July if lawmakers approve recommendations of the Select Committee on Budget and Appropriations of the National Assembly.

The Ndindi Nyoro-led committee has asked lawmakers to okay the fresh bailout for the national carrier to partly fund its recurrent needs through its report of the Estimates of Revenue and Expenditure for the financial year 2024-25 to be debated and approved later this month.

The lower funding appears to be in line with the government policy of ending bailouts for cash-strapped State-controlled entities in favour of restructuring.

Failed to service loans

The National Treasury, as a principal shareholder in KQ, has been forced to continue offering financial support in a U-turn move to its earlier pledge to end bailouts on the back of a protracted process to get a strategic investor for the loss-making carrier.

The funding is, however, significantly reduced from tens of billions of shillings that taxpayers have injected into the airline annually to keep it afloat on the back of deep cash flow challenges which were exacerbated by pandemic-induced travel curbs in 2020.

The airline has failed to service loans, which were guaranteed by the government, prompting the takeover of the multibillion-shilling liability this financial year.

Repayment period

Taxpayers spent Sh17.4 billion in the nine months to March 2024 to service a $641.49 million (about Sh83.4 billion under prevailing dollar conversion rates of Sh130 per unit) loan it took in 2017 to buy seven aircraft and an engine.

The advance, with a repayment period of 12 years, was originally provided by US lenders Citi Bank and JP Morgan before US export financier Private Export Funding Corporation (Pefco) took it over with the US Exim Bank and the Kenyan Government as guarantors.

Treasury’s guarantee covered $525 million (Sh68.3 billion) which it later converted to an external commercial public debt that is now being serviced by taxpayers.

The airline narrowed losses to Sh22.6 billion in the year ended December from Sh38.2 billion in the prior year.