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Kenya Airways Offered $217 Million Debt Reprieve as it Eyes Sustainability Post-Pandemic
Kenya has offered its national carrier Kenya Airways (KQ) a KES25 billion shillings ($217 million) lifeline on unpaid interest, which will help it survive and sustain operations during and after the COVID-19 pandemic.
The airline discloses in its latest annual report for the period to December 2021 that it failed to honor interest payment on the loan, which was issued in two tranches to save it from collapsing.
“As of 31 December 2021, the group and company had not made payments of interest on the government of Kenya loan as set out in the loan agreements. The loan agreements require payment of interest by the 20th day of June every year,” says the airline.
“The group sought and was granted waivers and deferrals on the unpaid interest on the shareholder loan,” it said.
The amount of KES25 billion includes the first tranche of KES11.1 billion ($96.2 million) in 2020 and the second tranche of KES14.4 billion ($124.8 million) in 2021. “The loans are repayable after five years and attract interest at the rate of 3% per annum, the accrued interest being payable by June 20 each year,” according to the financial report.
Additionally, the Kenya Airways Group also obtained waivers from commercial financiers before the end of 2021 on several facilities for the purchase of aircraft and the funding of pre-delivery deposits, the report reveals.
This was in line with the group’s contractual right to defer payment for at least 12 months. Consequently, the balances were not classified as current liabilities in the financial report.
According to the annual report, the Kenyan government has committed, through a letter of support, to continue to provide the required financial support to the Kenya Airways Group to enable it to implement its restructuring plan and meet its financial obligations as they fall due, for at least the next 12 months from December 31, 2021.
Need to Restructure
KQ itself needs to complete a restructuring before it can proceed to create a pan-African airline as well as find a financial backer for a combined airline group with South African Airways which they aim to create next year.
KQ CEO Allan Kilavuka acknowledged, though a round of cost cuts should be done by June 2022, a six-month Seabury Securities consultancy contract that will help the airline cut costs, improve efficiency, and return to growth ends in September.
The Kenyan government is supporting the process but requires the carrier to reduce its network, fleet size, and workforce, Treasury Secretary Ukur Yatani said in his budget speech on April 7.
A series of money induced by the government towards the airline’s restructuring has been termed by Kilavuka as “the last shot at making sure that we have a concrete, measurable, realistic structure that will be successful for the airline.”
The two national carriers are reportedly planning a series of investor roadshows to help find a financial backer.
The campaign will see events staged in Africa, London, and the United States to attract a majority investor for a holding company.
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