HomeFEATURED ARTICLEKQ gets Ksh10 billion lifeline from government

KQ gets Ksh10 billion lifeline from government

Troubled national carrier Kenya Airways has received Ksh10 billion soft loan from the National Treasury to implement its turnaround strategy. The government borrowed the cash from China’s Exim Bank on behalf of KQ whose fortunes have dwindled in the last five years hurting its ability to book debt on its own.

 “We have already disbursed to KQ because this money was for on lending,” said Treasury secretary Henry Rotich.

The loss making firm declined to reveal how it plans to spend the cash saying it is in a closed reporting period. The airline, which shocked the market with a Ksh25.7 billion after tax loss last year, is expected to release its full-year results at the end of the month.

Retrenchment costs are expected to be key in the management agenda following the delay of planned job cuts due to lack of funds. The loss-making company had announced plans to lay off 600 workers beginning May but did not start the process until last week — soon after the cash was made available.

The company sent home 80 employees on Sunday as the powerful Kenya Aviation Workers Union said it did not expect further retrenchments.

KQ has concurred with the union that the number will be lower than earlier announced due to effects of natural attrition and talks with the union. Four years back, KQ spent Ksh826 million to fire 599 employees in a process that was challenged in court.

Recent retrenchment exercises undertaken by listed companies have proven to be a costly affair with Nation Bank of Kenya spending Ksh1 billion to send home 200 employees in 2014, while Barclays spent Ksh788 million a year earlier to lay off 170 workers.

SEE ALSO >> KQ sacks 80 employee, 500 more to go

KQ expects to save Ksh2 billion annually from the staff cuts. The airline’s staff cost has grown by 51 per cent in the past five years to Sh16.96 billion for the year ended March 2015 compared to Sh11.2 billion in 2011. Its workforce stood at 3,973 as at March last year.

The national carrier targets to save Sh20 billion in the turnaround plan dubbed Operation Pride. This is the second tranche of a Sh20.2 billion debt taken by the Treasury on behalf of the company. The government owns 29 per cent of the airline.

Taking the loan through the Treasury allows KQ room to craft a repayment plan that does not pile pressure on its balance sheet, which is already heavy with debt and has forced the airline to sell some of its assets.


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