KQ defaults on Ksh.24 billion debt

Beleaguered national carrier Kenya Airways (KQ) is in default of Ksh.24 billion in liabilities out of Ksh.44 billion in payables due at the end of October.

According to disclosures made in a new International Monetary Fund (IMF) report, the overdue arrears cover creditors including aircraft lessors, operation and maintenance costs, landing and rental fees.

Other liabilities listed include fuel costs, rent, navigation, handling charges and taxes.

By mid-November, KQ’s total debt portfolio stood at Ksh.102.9 billion ($835 million) including all debts, loans, letters of credit and convertible equity amounts.

An estimated Ksh.84.9 billion ($688 million) of the debt portfolio is guaranteed by the government, exposing taxpayers to further losses in the billions should KQ fail to honour the arrears.

The government is already expected to continue supporting KQ in the current financial year (2022/23) to the tune of Ksh.35 billion to facilitate the normalization of overdue payments and prevent defaults.

Moreover, the government is expected to assume (novate) Ksh.49.7 billion ($485 million) in guaranteed KQ debt as part of exchequer support for the ailing airline.

Nevertheless, the IMF states reforms targeted at the airline operations have been gaining traction and that the airline would have an operating profit holding rising fuel costs in the first half of 2022 at constant.

“Currently, KQ is able to cover its operational costs, less financing and legacy costs, buoyed by the recovery in post-COVID-19 volumes. Notwithstanding the recent improvements in some financial indicators, KQ still has the highest cost base among airlines in the Sub-Saharan region and a negative equity position,” said the IMF.

Among the reforms at KQ which have been spearheaded by government include network optimization, operational leases negotiation, staff rationalization and cost management.

KQ is expected to remain under the ambits of government to include exchequer support as it continues to fly through turbulence.

In its 2021 report, KQ says it has so far received (by December 2021) a total of Ksh.25 billion to support the resumption of operations following the impact of the COVID-19 pandemic.

The government is Kenya’s largest shareholder with a stake of 48.9 per cent in the airline.