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Kenya Airways clears $86 million debt despite slip-up in repayment

Kenya Airways, the national carrier of Kenya,  has successfully cleared its $86 million debt, despite facing some challenges in its repayment.

The Kenyan government stepped in to settle the debt on behalf of the national carrier, shedding light on the increasing burden that struggling State-owned entities are placing on taxpayers.

According to the National Treasury, the State settled the debt during the financial year ending in June 2023. The debt comprised $73.7 million as the principal amount and $11.82 million as interest. This payment was made to the Private Export Funding Corporation, which was guaranteed by the US Exim Bank and the Kenyan government.

The loan, originally provided by Citi Bank and JP Morgan, was a 12-year facility taken by KQ in 2017 to purchase aircraft. However, the airline faced financial difficulties and was unable to meet its repayment obligations, leading to the government’s intervention.

Kenya Airways clears $86 million debt despite slip-up in repayment
Kenya Airways clears $86 million debt despite slip-up in repayment

In the three months leading up to March, the government paid $50.75 million after receiving a default notice from the US Exim Bank due to delayed settlement. The rapid depreciation of the Kenyan shilling has made it more expensive for the government to settle external loans, which has raised concerns among taxpayers.

Despite this slip-up in repayment, the government’s intervention ensures that Kenya Airways has been able to clear its debt. The settlement of this significant amount highlights the government’s commitment to supporting struggling State-owned entities and maintaining the country’s aviation industry.

However, the burden placed on taxpayers cannot be ignored. The rising debt of State-owned entities and the depreciation of the Kenyan shilling have significant implications for the economy. It is crucial for the government to address the underlying issues that have led to these financial challenges and implement measures to prevent future defaults.

The heavily indebted airline has recorded losses for 10 years in a row and more than doubled the losses to hit a record Ksh 38.26 billion ($265.97 million) in the financial year ended December 2022 due to a rise in financing costs.

The net loss grew from Ksh 15.87 billion ($110.32 million) posted in 2021 and takes the national carrier’s accumulated loss to Ksh 172.68 billion ($1.2 billion).

The airline’s costs grew from Ksh 86.4 billion ($600.63 million) to Ksh 155 billion ($1.08 billion), mainly driven by fuel prices, which increased by 160 percent while other direct operating costs increased by Ksh 12.4 billion ($86.2 million) due to increased capacity.

The steadily growing debt burden of KQ has once again come under the spotlight as Treasury data reveals an increase of Ksh2.08 billion ($14.46 million) in the government’s repayment obligations in April alone. This surge in debt is attributable to the depreciation of the local currency, bringing KQ’s total debt to a staggering Ksh 79.09 billion ($549.81 million) in April. This represents a significant 2.7 percent increase from the previous month’s figure of Ksh77.01 billion ($535.35 million).

Kenya Airways clears $86 million debt despite slip-up in repayment
Kenya Airways clears $86 million debt despite slip-up in repayment

The national carrier has been grappling with mounting losses for a decade, and the financial year ended December 2022 proved to be the most challenging yet. KQ’s losses more than doubled, reaching a record high of Ksh 38.26 billion ($265.97 million) due to soaring financing costs. This astronomical increase in losses marks a sharp escalation from the Ksh15.87 billion ($110.32 million) loss reported in 2021. As a result, the company’s accumulated loss now sits at a daunting Ksh 172.68 billion ($1.2 billion).

The surge in the airline’s debt can primarily be attributed to its rising costs. From Ksh 86.4 billion ($600.63 million), the costs jumped to Ksh 155 billion ($1.08 billion), a substantial increase driven by surging fuel prices. In fact, fuel prices alone rose by a staggering 160 percent, significantly impacting the airline’s operating expenses. Additionally, other direct operating costs saw a sharp increase of Ksh12.4 billion ($86.2 million) due to the expansion of the airline’s capacity.

These dire financial challenges coincide with pressure from the International Monetary Fund for Kenya Airways to undergo significant reforms.

The IMF aims to steer the company away from government bailouts, which have burdened taxpayers for far too long. The organisation insists that the best strategy to turn around the struggling airline is one that minimises costs to the exchequer.

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