Debt-stricken Kenya Airways and Kenya Power to get Sh37bn State bailout
Kenya Airways and Kenya Power to get Sh37bn State bailout in the current financial year to support their restructuring
Kenya Airways and Kenya Power to get Sh37bn State bailout in the current financial year to support their restructuring.
Kenya Airways (KQ), the country’s struggling national airline, and Kenya Power will receive a bailout of Sh37.3 billion for the current fiscal year in order to help restructure the two state-owned organizations and wean them off on yearly government funding.
The funding is a requirement of the International Monetary Fund (IMF), which is pressuring the government to expedite changes at parastatals—many of which are perennially losing money—in order to bring them back into profitability.
After the supplementary budget reduced the funding by Sh8.7 billion, KQ will receive Sh34.95 billion and Kenya Power Sh2.35 billion in the allocation, which is less by Sh8.7 billion than that in the original budget for the financial year 2022–23.
The airline has already received Sh10 billion from the Treasury by September to assist it pay off its debts, which total $835 million (Sh102.82 billion) in total.
KQ owes Sh44 billion in payables to aircraft lessors for things like operating and maintenance expenses, landing and rental fees, fuel costs, rent, navigation and handling fees, and taxes.
KQ has payables amounting to Sh44 billion owed to aircraft lessors, operation, and maintenance costs, landing and rental fees, fuel costs, rent, navigation, handling charges, and taxes.
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The Treasury says the bailouts to KQ are already bearing fruit after the lender reduced its operating losses in the first half of 2022 by 31.5 percent to Sh5 billion, adding that the airline would have turned a profit in the absence of higher fuel prices.
“Commercial performance paired with initiatives under the restructuring plan have already had a positive impact on KQ’s solvency issues,” said the Treasury.
As part of KQ’s restructuring, the airline is optimizing its network to cut 12 loss-making routes and has already retired flights to 16 destinations globally.
The carrier will also reduce its fleet size by terminating some aircraft leases and eye negotiations with operating lessors to cut its annual lease costs.
Kenya Airways is also targeting to lay off staff to reduce staff costs and is eyeing further cuts in other costs including operations and maintenance, distribution costs, ticketing, procurement, and fuel costs.
“The government will continue to support KQ financially in the financial year 2022/23 to facilitate normalization of overdue payments to prevent defaults for settlement of operating lessors’ arrears and completion of payments, as well as other working capital support,” said the Treasury.
On the other hand, Kenya Power will use the Sh2.35 billion bailout to fill the liquidity gap created by the January electricity pricing drop. This month, the lower electricity rates come to an end.
The utility is expected to lose Sh26 billion in revenue as a result of the rate drop, but the company has already received Sh7 billion in financial relief.
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