Treasury turns down KQ request for bailout

By JAMES ANYANZWA

The National Treasury has rejected a proposal by cash-strapped Kenya Airways (KQ) for a fresh financial bailout estimated at $499.77 million, spelling doom to the operations of the loss-making national carrier.

Chief executive Allan Kilavuka told The EastAfrican that in March, the airline proposed a $500 million financial bailout, but the government has only disbursed Ksh25 million ($227,270), since the last financial year.

“The airline has received Ksh25 million ($227,270). We are extremely appreciative of the support we have received so far, considering the many industries government is supporting in these unprecedented times,” Kilavuka said in an emailed response.

Government rejoinder

However, Stanley Kamau, the acting Director General in-charge of Public Investments and Portfolio Management Directorate at the National Treasury told The EastAfrican that the government was unaware of the fresh bailout proposal and as such no allocation for that expenditure has been factored into the budget for the current (2021/22) fiscal year.

“We have not received any bailout request from Kenya Airways. No. We haven’t received any. We have not discussed with KQ about this bailout for 2021/2022 with anyone,” Mr Kamau told The EastAfrican during an interview last week.

Desperation

In March, the airline said it was in desperate need of an immediate capital injection of about $500 million to cover short-term debts that had fallen due and shore up its depleted working capital in order to survive what it considers another difficult year under the third wave of the Covid-19 pandemic.

“No, I’m not sure they asked for $500 million for I haven’t seen such a request,” he said.

Last year, Treasury Cabinet Secretary Ukur Yatani said the state was keen on a long-term solution anchored on nationalisation of Kenya Airways, rather than short term financial bailouts.

The national carrier, which is technically insolvent announced in August that it was in dire need of fresh financial support from its anchor shareholder (the Kenya government) to fund its operations to year-end, with its employees accepting pay-cuts of up to 30 percent since January to help the airline survive the turbulence.

Kilavuka termed KQ’s financial situation precarious, with a negative equity position that required immediate financial support from its principals or elsewhere.

The carrier, which has forecast a grim full-year performance due to the effects of the Covid-19 pandemic posted a net loss of Ksh11.48 billion ($104.36 million) during the six months to June 30 down from a net loss of 14.32 billion ($130.18 million) in the same period last year.

The reduction was helped by diversification into cargo and charter flight operations as passenger numbers shrank wiping out passenger revenues.

The government has opted to take over the airline through a process called nationalisation by buying out the minority shareholders.

But the draft law that allows the state to take over the 44-year-old airline has faltered in parliament as other national matters took precedence in House business.

House business load

“The Bill is in parliament awaiting scheduling on the Order Paper for debate.

‘‘We had a very long road on this Bill, but a lot of stuff turned out to be mere rumour [speculation],” said David Pkosing, National Assembly Transport Committee Chairman.

“In parliament things are prioritised, such as the Building Bridges Initiative, and then the national budget. But possibly when we come back from recess, it will be put on the Order Paper.”

On July 3, 2020, the airline’s stock on Nairobi Securities Exchange was suspended from trading ahead of the planned takeover by the state following publication of the National Management Aviation Bill 2020 on June 18, 2020.

Shareholding

In March, the Bill was withdrawn from business lined up for consideration by the National Assembly during a special sitting after MPs threatened to shoot it down protesting delays by Treasury to release their National Government Constituency Development Fund money.

The lawmakers were to debate and vote on the bill to allow its progression to the next stage — third reading or the amendment stage.

House rules provide that any Bill lost at the debate stage can only be reintroduced after six months.

Kenya Airways is 48.9 per cent owned by the government and a group of 10 local banks with 38.1 per cent of the shares.

The remaining other shareholders are KLM Royal Dutch Airline (7.8 percent), employees (2.4 percent) and others at 2.8 percent.