Thursday 06th March, 2025 11:40 AM|
Kenya Airways wants restructuring as it’s presently struggling to cater for its liabilities, regardless of having posted a revenue, National Treasury Cabinet Secretary John Mbadi has stated.
KQ, because the nationwide provider is thought by its worldwide code, reported a revenue for the primary half of the 2024 monetary yr, ending June 30, from the Sh21.7 billion loss reported in the same earlier interval. This was the primary time the airline had made a revenue after tax since 2013.
However, the airline is presently searching for Sh26 billion from the federal government to restore and convey again eight engines to the nation to assist with its operations, a brand new revelation that comes instantly after it introduced a further airplane to its fleet.
Addressing National Assembly departmental committees at a Nairobi resort, Mbadi dismissed the glamorous studies that the airline is doing properly, including that it additionally wants some severe restructuring.
“The real story is that KQ is struggling, even as we speak, KQ is still seeking funding from the government to the tune of Sh26 billion to repair and bring back engines for the aircraft to service the condition, I think about eight of them,” he stated.
“In fact, when you sit with them, you paint a very good picture of what is likely to happen, so when, they could be making some more profits, but KQ needs serious restructuring,” the CS disclosed.
According to Mbadi, the federal government has needed to bail out the airline a few occasions, guaranteeing its money owed as a result of monetary challenges it has been going by over time.
Ideally, if the airline defaults its debt obligations to collectors, the federal government steps in to ensure them because it turns into a nationwide curiosity. At the second, the overall quantity anticipated to cleared for 10 native banks is Sh9.6 billion.
In the monetary yr 2021/22, the federal government assure to the nationwide profession was known as because of mortgage cost defaults of $525 million (Sh67.72 billion) owed to Private Export Funding Corporation (PEFCO) of US and assured by Exim Bank of US who in flip had been assured by the Government of Kenya.
The mortgage had been used for the acquisition of seven aircrafts and one engine and was set for a tenure of 10 years anticipated to mature in FY 2027/28.
“Following the default KQ sought GoK intervention and the Cabinet gave approvals for the Government to pay the mortgage arrears on behalf of KQ and the mortgage steadiness was novated to Government.
The novation course of was finalized within the FY 2022/23 and the mortgage repayments are being carried out on behalf of KQ which shall be recovered by a subsidiary mortgage settlement between the Government and the airline as per the necessities of the PFM Act, 2012,” Mbadi stated.
Prior to this, regionally, the airline sought $226 million ( Sh29.15 billion) from 10 business banks to cater for its working capital, however as a consequence of its deep-rooted monetary woes, it had an impressive debt of $217 million (Sh27.99 billion) by 2017.
The state of affairs necessitated the Project Safari Restructuring in the course of the yr after which negotiated a restructuring of the excellent debt which included the incorporation of a Special Purpose Vehicle (SPV), KQ Lenders Company 2017 Ltd (KQ Lenders), to signify the pursuits of the native banks.
A complete of $167 million ( Sh21.54 billion) of the overall debt was transformed to fairness by KQ Lenders with the steadiness of $ 50 million (Sh6.45 billion) being issued as a compulsory convertible notice, a short-term debt instrument that’s transformed to fairness upon a predetermined conversion occasion.
According to Mbadi, the federal government managed to ensure the money owed by three methods together with standby letters of credit score (SBLC), $75 million ( Sh9.67 billion), multipurpose credit score facility, $ 100 million ( Sh12.9 billion) and a assure to KQ Lenders $ 50 million (Sh6.45 billion) ought to they promote their shares in KQ on the finish of the power interval and are unable to cowl the principal mortgage steadiness.
Between May 2022 to September 2024, the lessors known as on SBLCs amounting to $107.7 million (Sh13.89 billion), and the native banks had to answer the decision.
“KQ has been unable to fund the call-ups due to financial constraints and has requested the local banks to honour the call-ups and convert them into short-term loans under the terms of the GoK guaranteed multipurpose facility,”
This has resulted within the multipurpose facility rising above the assured restrict of $100 million (Sh12.9 billion) inflicting a breach within the facility.
Due to this breach, the native banks by their facility agent issued a number of notices to KQ, demanding fast cost of the breached quantity.
“So after the deliberations between GOK and the native banks and KQ, it was agreed that GOK set its quantity known as out to the native banks and handled all the quantity as a further shareholder mortgage to Kenya Airways.
And I need to report that I chaired this assembly. It was a really, very annoying assembly to have, so to talk,” he acknowledged.
“The banks were up in arms, very ready to call out this and the disaster this would have caused in our financial market was enormous. So, the settlement with the local bank was done on 3rd January 2025.”
He famous that the overall quantity of $ 149.9 million (Sh19.33 billion) shall be payable to the federal government by KQ by a Shareholder Loan Agreement whose phrases are to be negotiated and finalized within the first half of 2025.