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Kenya Airways secures another 36.6 billion shillings government bailout

The Treasury will offer Kenya Airways (ENS: KQ) another bailout of 36.6 billion shillings during the year beginning in July as part of efforts to support the national carrier as it recovers from the Covid-19 travel crisis.

The allocation, contained in budget documents tabled in parliament, comes weeks after MPs approved a 20 billion shilling bailout for the airline.

This will bring state support for the airline to 56.6 billion shillings in less than a year, making it the biggest corporate bailout in Kenya.

The new Treasury allocation is described as a strategic government investment and comes after the state abandoned plans to nationalize the airline.

“Amount of capital injected into Kenya Airways (KQ) 36.6 billion shillings,” the Treasury said in documents.

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

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

Things started to change last year, KQ said, boosting revenue by a third to 70.22 billion shillings.

Total costs decreased slightly by 3.6%, partly due to the renegotiation of aircraft leases, which resulted in significant savings.

But the national carrier still needs money for aircraft maintenance, salary payments and utility bills such as security, water, electricity and parking as well as disaster mitigation. virus effects.

Without state aid, the airline risked running out of money in the near future as banks were uneasy about lending to African carriers.

The bailout comes as the state abandoned the favored long-term solution for the ailing KQ that was rooted in nationalization.

The nationalization plan approved by lawmakers in July 2019 would have led to the airline’s delisting from the Nairobi Securities Exchange (NSE).

A law paving the way for the nationalization of the airline, which had been proposed before the pandemic, is before Parliament.

Kenya wanted to emulate countries like Ethiopia that run air transport assets – from airports to fueling operations – under one company, using funds from the most profitable parties to support others.

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

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

The government owns 48.9% of KQ shares.

Trading in the company’s shares on the NSE has been suspended since July 2020, with the carrier working on a restructuring plan.

Now the state is keen to push for the carrier’s restructuring on the back of the multi-billion shilling bailout.

KQ will have to downsize its network, operate a smaller fleet and possibly lay off more staff as part of the bailout terms.

The airline defaulted on interest on a 25 billion shillings loan owed to the government in the year ended December following the economic fallout from Covid-19.

The national carrier revealed in its report for the year ended in December that it had made no payments for loans taken out 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 countries rushed to curb the spread of Covid-19.

“As of December 2021, the group and the company had not made any interest payments on the Government of Kenya loan as stated in the loan agreements,” KQ said in its annual report for the year ending December. .

The Treasury granted KQ an 11 billion shilling bailout in 2020, months after international and domestic flights were suspended.

The carrier received the second batch of 14 billion shillings last year.

The loans attract annual interest at the rate of three per cent, which is expected to be paid by June 20 over five years, but the national carrier says it has requested a waiver and deferral on unpaid interest.