Treasury Clears Kenya Airways Ksh 12.3B Debt
In the fiscal year ending in June 2023, the government took responsibility for clearing debt of Ksh 12.3 billion on behalf of the country’s flagship airline, Kenya Airways (KQ). This situation highlights the increasing weight of financially challenged government-owned enterprises on the shoulders of taxpayers.
Information from the National Treasury indicates that the government paid off a debt of Sh10.6 billion, which included both the principal amount and accrued interest totaling Sh1.7 billion.
“The national government paid Sh12.3 billion guaranteed debt on behalf of Kenya Airways during FY 2022/23. The payment is composed of Sh10.6 billion as principal payment and Sh1.7 billion as interest,” said the Treasury.
The repayment of the loan guaranteed by the State occurs after KQ fails to meet its obligations on a portion of the $525 million loan provided by the Private Export Funding Corporation (Pefco). This loan had initial backing from the US Exim Bank and the Kenyan government.
The original 12-year KO loan, initially offered by Citi Bank and JP Morgan, was later acquired by Pefco. The US Exim Bank and the government of Kenya also became guarantors during this transition.
The country’s main airline acquired the loan in 2017 to buy airplanes. However, due to financial challenges, the airline was unable to meet the repayment obligations, leading to a situation where the government had to step in and assume control.
During the period from January to March, the Kenyan government disbursed a sum of Sh7.3 billion, prompted by a default warning from the US Exim Bank due to the postponed repayment. Taxpayers’ concern is heightened by the swift devaluation of the Kenyan shilling, which is increasing the cost for the government to repay these foreign loans.
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For example, information from the Treasury indicates that the government’s repayment of KO’s debt rose by Sh2.08 billion in April because of the devaluation of the domestic currency. This led to a growth in the debt to Sh79.09 billion in April, marking a 2.7 percent upsurge from the Sh77.01 billion recorded in March.
The airline with substantial debts has experienced a decade of consecutive losses, and in the fiscal year ending in December 2022, it saw its losses increase by over two times, reaching an all-time high of Sh38.26 billion. This rise in losses was primarily attributed to an increase in financing expenses.
The national airline’s cumulative loss reached Sh172.68 billion as the net loss expanded from Sh15.87 billion reported in 2021.
The airline witnessed a cost escalation from Sh86.4 billion to Sh155 billion, primarily attributed to the surge in fuel prices by 160%. Additionally, other expenses related to direct operations saw a rise of Sh12.4 billion due to increased capacity.
At present, the International Monetary Fund (IMF) is advocating for significant changes within the company, aiming to gradually end the airline’s reliance on government financial assistance by December of this year. This is being done to alleviate the financial load on taxpayers.
The IMF maintains that the most effective approach to revive the financially challenged airline should be centered around minimizing expenses for the government treasury.
Treasury Clears Kenya Airways Ksh 12.3B Debt
