Kenya’s national carrier, Kenya Airways is unable to repay loans from the country’s treasury. It is unable to repay interest on a $216 million (Sh25 billion) loan owed to the government in the year ended December. The loans were obtained by the airline in the face of the excruciating COVID-19 pandemic that affected not only the East African carriers but global airlines.

Kenya Airways applied for the loans after grounding its fleet following the ban on international flights as Kenya and other nations raced to curb the spread of Covid-19. The carrier has been relying on bailouts from the Treasury amid years of losses that have made it technically insolvent.

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As of December 2021, the group and company had not made any payments of interest on the government of Kenya loan as set out in the loan agreements, the airline said in its annual report for the year ended December 2021.  The Treasury gave the airline an Sh11 billion bailout in 2020, months after the suspension of international and domestic flights. The carrier received the second batch of Sh14 billion last year. The loans attract an annual interest at the rate of three percent which should be paid by the 20th of June over five years but the national carrier says it sought a waiver and deferral on the unpaid interest. The airline said the waiver and deferral on the loan helped protect its cash reserves as it struggled to recover from the coronavirus-induced economic meltdown.

Loan purpose

The loans were meant to pay staff, maintenance of aircraft and water, security and electricity bills in the wake of the Covid-19 disruptions that saw it post an Sh36.2 billion loss — the worst ever in the history of the airline.  The government, through the Treasury, holds a 48.9 percent stake in the airline and has provided the airline with tens of billions of shillings worth of shareholder loans in recent years. The national carrier started operating cargo flights after the government stopped all international flights in mid-March 2020 to slow down the spread of the disease. The airline also furloughed most of its workers and reduced staff salaries by as much as 80 percent as it sought to reduce costs and protect its already weakened financial position.

Restructuring

The carrier has also been reducing its staff count in a restructuring plan meant to ease the operations cost of the carrier. Staff numbers dropped to 3,544 in the year ended December from 3,652 in 2020 while employee costs fell to Sh12.71 billion from Sh13.619 billion in a similar period. Things started to turn around last year after the lifting of the bans on international and domestic flights, with the return of flights helping reduce its losses. Its net loss narrowed to Sh15.8 billion last year from Sh36.2 billion the year before when travel restrictions hit operations hardest, including the grounding of its planes for months.

Reprieve

The move to seek reprieve on interest for the Sh25 billion comes amid an increase in current debt— loans that should be paid within a year. Its current debt rose to Sh14 billion in the year under review from Sh10.6 billion in 2020. The airline’s borrowings have been growing over the years, highlighting its deepening financial struggles that were made worse by the grounding of planes in 2020. Total debt for the carrier hit Sh107.09 billion in the year ended December, up from Sh92.53 billion the year before and Sh76.12 billion in 2019.

Perennial losses

Kenya Airways has gone for nine straight years without profits, extending its accumulated losses to Sh144.64 billion. The last time it made a profit was in 2012, with net earnings of Sh1.66 billion. The carrier has since tapped US firm Seabury to advise it on financial restructuring and a revival plan amid the continued losses that have seen the company rely on State bailouts to keep operating. Its board chairman, Michael Joseph said the deal with the US firm runs over six months and has ‘various deliverables along the way.’ The deal with Seabury comes months after the Treasury announced it had dropped plans to nationalize the troubled national carrier and instead opted for more bailouts.

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