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KQ gets another Sh36.6bn State bailout

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A fleet of Kenya Airways planes at Jomo Kenyatta International Airport in this photo taken on July 15, 2020. PHOTO | JEFF ANGOTE | NMG

The Treasury will offer Kenya Airways #ticker:KQ a further Sh36.6 billion bailout in the year starting July as part of efforts to prop up the national carrier amid recovery from the Covid-19 travel slump.

The allocation, contained in budget documents tabled in Parliament, comes weeks after MPs approved a Sh20 billion bailout to the airline.

This will push State support for the airline to Sh56.6 billion in under a year, making it the largest corporate bailout in Kenya.

The fresh Treasury allocation is labelled a strategic government investment and comes after the State dropped the plan to nationalise the airline.

“Amount of capital injected into Kenya Airways (KQ) Sh36.6 billion,” said the Treasury in documents.

The allocation emerged in a period that saw the national carrier more than halve losses last year to Sh16.03 billion, helped by growth in revenue and some cost savings.

Like other airlines around the world, the carrier was pummeled by the closure of airspace in 2020, as governments tried to contain the spread of the coronavirus.

Things started to turn around last year, KQ said, boosting revenue by a third to Sh70.22 billion.

Total costs edged down 3.6 percent, partly helped by the renegotiation of plane leasing contracts, which led to significant savings.

But the national carrier still needs money for the maintenance of planes, payment of salaries and settlement of utility bills such as security, water, electricity and parking as well as easing of the effects of the virus.

Without State aid, the airline risked running out of money in the near future against the backdrop of unease among banks about lending to African carriers.

The bailout comes as the State dropped the favoured long-term solution for the ailing KQ that was anchored in nationalisation.

The nationalisation plan approved by lawmakers in July 2019 would have led to the delisting of the airline from the Nairobi Securities Exchange (NSE) #ticker:NSE .

A law to pave the way for the nationalisation of the airline, which had been proposed before the pandemic, is before Parliament.

Kenya wanted to emulate countries like Ethiopia which run air transport assets — from airports to fuelling operations —under a single company, using funds from the more profitable parts to support others.

Under the model approved by MPs, KQ would have become one of four subsidiaries in an aviation holding company.

The others would be Jomo Kenyatta International Airport, an aviation college and the Kenya Airports Authority operating all other airports.

The government owns 48.9 percent of KQ shares.

Trade in the company’s shares on the NSE has been suspended since July 2020 as the carrier works on a restructuring plan.

Now, the State is keen on pushing for the restructuring of the carrier on the back of the multi-billion shilling bailout.

KQ will be required to reduce its network, operate a smaller fleet, and possibly lay off more staff under the bailout terms.

The airline defaulted on interest for a Sh25 billion loan owed to the government in the year ended December following the Covid-19 economic fallout.

The national carrier revealed in its report for the year ended December that it did not make any payment for the loans that were taken in two tranches last year and in 2020.

KQ 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.

“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,” KQ said in its annual report for the year ended December.

The Treasury gave KQ a 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.

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