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GoK finds a creative way to rescue ailing Kenya Airways

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Kenya Airways was born out of the collapse of the East African Community in 1977.

The government plans to convert Kenya Airways loans into equity in an effort to salvage the financially ailing airline as it undergoes financial restructuring.

This means Treasury will take an additional Ksh25 billion stake in Kenya Airways  which will significantly raise government shareholding in the loss-making airline. The capital restructuring will see the $243 million (about Ksh25 billion) debt that KQ owes the Treasury converted into shares.

The deal, aimed at offering the national carrier reprieve from crippling loan repayments and boost its liquidity, also comes with the State guarantee to pay KQ’s long-term loans totalling $750 million (Ksh77.3 billion) in the event of default.

Treasury owns 29.8% of KQ, and will increase its stake to about 40, with KLM expected to inject about $100 million to defend and possibly shore up its present 26.7% shareholding.

See Also: Meet the new CEO of Kenya Airways

However, the airline is not yet out of turbulence as the proposal to bail it out of liquidity problems has to be approved by the National Assembly, according to Treasury Cabinet Secretary Henry Rotich.

Mr Rotich says the approval of the cabinet’s support will secure future funding for the corporation and will more importantly, not require the government to provide cash as part of the restructuring input. “As a major shareholder, the government is keen to secure the airline’s future and ensure it has a healthy liquidity profile and also remain operational,” said Rotich.

The CS confirmed that the government would also provide contingent guarantees in exchange for material concessions stating that KQ was of strategic importance to the country’s economy. Rotich noted that apart from the financial restructuring, the company also needs to extend the repayment period for its debts in order to reduce the overall debt burden on the balance sheet.

Read: How Kenya Airways acquired the KQ name

“This will stabilize the company and allow it to meet its obligations and facilitate long term growth. By so doing, it would also position itself in position to continued playing its crucial role in the economy,” said the CS.

Mr Rotich added that the proposed restructuring of the airline will generate concessions from all stakeholders and the re-capitalization of the business.

Transport Cabinet Secretary James Macharia noted the airline is critical to Kenya’s economy with a trickle-down effect benefiting thousands of Kenyans, including employing over 4,000 people directly and over 140,000 jobs indirectly.

“The aviation sector continues to play a major role in the country’s development and position as a major hub in the region, contributing about 10 percent of the GDP,” said Macharia.

He added that what the Cabinet had settled for was to the best interest of not only the airline but the country at large.

Michael Joseph, the airline’s Chairman, said the support by all the airline’s creditors, principal shareholders and other stakeholders will see this transaction, once it is completed, position Kenya Airways in a new era of sustainable growth.

“We are grateful for the support obtained from the Government and urge the National Assembly to give its approval to allow KQ remain the Pride of Africa,” said Joseph.

Kenya Airways recently posted an operating profit of Ksh897 million for the year 2016/2017 compared to a Ksh4.1 billion operating loss the previous financial year.

[crp]

Business Today is the leading independent online business website in Kenya. Started in 2012 by a veteran business journalist, it has a huge following both in Kenya and abroad. It covers various business and related issues. Email editor at: [email protected]

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