- Kenya Airways 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.
- The carrier, popularly known by its international code, KQ, has relied for years on Treasury bailouts amid years of perennial losses that have rendered it technically insolvent.
- The Treasury granted KQ an 11 billion shilling bailout in 2020, months after international and domestic flights were suspended.
Kenya Airways #ticker:KQ defaulted on interest on a 25 billion shillings loan owed to the government in the year ending December, underscoring the financial hit the airline has suffered following the disruptions of the pandemic.
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.
Kenya Airways 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.
The carrier, popularly known by its international code, KQ, has relied for years on Treasury bailouts amid years of perennial losses that have rendered it technically insolvent.
“As of December 2021, the group and the company had made no 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 deferment on unpaid interest.
KQ says the waiver and postponement of the loan helped protect its cash reserves as it struggled to recover from the coronavirus-induced economic meltdown.
The loans were intended to pay staff salaries, aircraft maintenance and water, security and electricity bills following the Covid-19 disruptions which saw KQ record a loss of 36.2 billion shillings – the worst in the airline’s history.
The government, through the Treasury, owns a 48.9% stake in the airline and has provided KQ with tens of billions of shillings in shareholder loans in recent years.
The national carrier turned to operating cargo flights after the government halted all international flights in mid-March 2020 to slow the spread of the disease.
The airline also laid off most of its employees and cut staff salaries by up to 80% as it sought to cut costs and protect its already weakened financial position.
KQ has also reduced its workforce as part of a restructuring plan intended to ease the carrier’s operating costs.
The number of employees fell to 3,544 in the year ended December from 3,652 in 2020, while labor costs fell to 12.71 billion shillings from 13.619 billion shillings in a similar period.
Things started to change last year after bans on international and domestic flights were lifted, with the return of flights helping to reduce its losses.
Its net loss narrowed to 15.8 billion shillings last year from 36.2 billion shillings the previous year, when travel restrictions hit operations hardest, including the grounding of its planes for months.
The decision to seek an interest reprieve for the 25 billion shillings comes amid rising current debt – loans that are expected to be repaid within a year. KQ’s current debt rose to 14 billion shillings in the year under review, from 10.6 billion shillings in 2020.
The airline’s borrowings have increased over the years, underscoring its growing financial difficulties which have been compounded by the grounding of planes in 2020.
The carrier’s total debt reached 107.09 billion shillings in the year ending December, compared to 92.53 billion shillings the previous year and 76.12 billion shillings in 2019.
KQ has gone nine consecutive years without profits, extending its accumulated losses to 144.64 billion shillings. The last time it made a profit was in 2012, with a net profit of 1.66 billion shillings.
The carrier has since tapped US firm Seabury to advise it on financial restructuring and a recovery plan amid continued losses that have seen the company rely on state bailouts to keep operating.
KQ board chairman Michael Joseph said the deal with the US company spans six months and has “various deliverables along the way.”
The deal with Seabury comes months after the Treasury announced it had abandoned plans to nationalize the struggling national carrier and instead opted for more bailouts.