National carrier Kenya Airways has linked the payment of a multi-billion shilling debt to the injection of funds into the airline by a strategic equity investor, throwing into uncertainty payments falling due.
The identification of the strategic investor has been delayed amid reports that the State, which holds a 48.9 percent stake in the airline, has expanded its options for providing capital to the national carrier.
KQ says the payment debts owed to local banks, the State and external financiers are hinged on the infusion of funding into the business.
“What is very critical in that repayment process is the strategic investor. When funding comes in, we need to review the balance sheet so we can address that process,” said chief executive Allan Kilavuka.
KQ’s total loans were Sh142.7 billion at the end of last year, up slightly from Sh141.7 billion in December 2023.
The Public Debt and Privatisation Committee last week disclosed that KQ and the government inked a deal, which will see the airline pay the Sh58 billion loan by October 5, 2028.
The carrier is expected to pay other loans, including Sh45.7 billion guaranteed debt to the government, other State loans valued at Sh62.5 billion by 2035, Sh1.7 billion due to local lenders by 2028 and a dollar-denominated Sh19.7 billion revolving facility owed to local banks in 2027.
The search for a strategic investor in Kenya Airways has stalled after the government froze approval of a consultant to help identify the equity partner amid claims that the State is reconsidering the turnaround plan.
The government previously informed the International Monetary Fund (IMF) that the preparation of proposals for Cabinet approval of strategic options for restructuring KQ would be complete by the end of last November, after moving the initial deadline from April.
The IMF sees the injection of new capital into Kenya Airways as critical to the sustainability of the company despite the airline flying back into profitability last year after more than a decade of losses, helped by foreign exchange gains.
One of Africa’s biggest airlines, its net profit was Sh5.4 billion in 2024, compared with a loss of Sh22.6 billion the year before.
Outgoing Kenya Airways Chairman Michael Joseph said the new Kenya Kwanza administration is likely overwhelmed by other competing economic needs as the wait for a Cabinet nod moves closer to a second year.
“The new administration has a lot of demands on its hands. The administration did not want to go into further debt, which is probably a good idea. Now, I think, we must find our own strategic investor. We need someone who will put money in, knowing this is a valuable airline,” Mr Joseph said in a Friday interview.
The airline says it had hoped fresh funding would help it order new aircraft, open new routes and refresh its current fleet.
However, debt repayments are emerging as a challenge for Kenya Airways.
Early this year, eight commercial banks forced the Treasury to pay them Sh19.3 billion ($149.9 million) in full for unpaid loans to Kenya Airways and rejected an offer to recover the defaulted debt through a 6.5-year bond.
The banks, including Equity, NCBA and Cooperative, slapped the Treasury with a default notice after the national carrier indicated it had no cash to settle the debt.
The Treasury, which had guaranteed the loan, had to settle the debt in cash by August or issue the lenders an acceptable government security instrument or a bond, forcing the lenders to issue a loan call-up.
Technically, a call-up is a demand from lenders for full payment of the debt due to fears of the borrower’s future ability to make payments. Being a sovereign loan, non-payments would have been deemed a default, hurting Kenya’s credit rating.
This forced the government to withdraw Sh19.3 billion on January 3 to settle the debt without MPs’ approval as an emergency item. The settlement has since been approved via a supplementary budget.
KQ says it has held informal discussions with potential strategic investors, arguing that government input is key to tapping one.
“We have been having formal discussions, but these discussions need to be formalised through a process which is appointing professionals to help with identifying a strategic investor and then going ahead to appoint them,” said Mr Kilavuka.
“That process needs to be approved by the principal shareholder, who is the government of Kenya. The wait is concerning for us to be honest because this process needs to be fast-tracked, but I think the government has very many weighty issues to deal with, like the economy, which is not doing very well. In the meantime, we are holding discussions with very many potentials, and we will see how that comes through.”
