KQ the bottomless hole gobbling up taxpayers’ money
The government’s decision to take up payment of 525 million dollars (Sh63,735,000,000) loan guaranteed to the country’s national carrier Kenya Airways (KQ) by the United states Private Export Funding Corporation (PEFCO) after the airline failed to meet its repayment obligations, has been approved by the cabinet.
National treasury in the latest debt management report for the fiscal year 2021/22 indicated that in the year 2017, the government guaranteed part of the 841.6 million dollars 10-year facility running until FY 2027/28.
“A Cabinet decision was made to novate Kenya Airways guaranteed debt to government which was in arrears. Kenya Airways borrowed a total of USD 841.6 million from Exim Bank of USA to purchase seven (7) aircrafts and one (1) engine. Out of this amount, the National Government guaranteed USD 525 million. Kenya Airways defaulted on both the guaranteed portion of the loan amount as well as the non-guaranteed portion. The National Government is in the process of novating the debt to be finalised during FY 2022/23.” reads part of the report.
The arrears have been paid and the novation process currently on-going and is expected to be finalized in the FY 2022/23.
The National Treasury says the loan repayments done by the government on behalf of KQ will be recovered through a subsidiary loan agreement between the government and the airline, according to the requirements of the Public Finance Management Act, 2012.
“The Exim loan was guaranteed by the government, a sovereign warranty which was approved by Parliament at the time. As it was a sovereign warranty, it forms part of the National Debt and on the government’s balance sheet. Therefore, to assist KQ it was decided to move (novate) this loan from KQ’s balance sheet to GoK. KQ is still responsible for making the loan payments,” KQ board chairman Michael Joseph told The informer.
KQ which is 48.9 per cent owned by the government and a group of 10 local banks which own 38.1 per cent of the shares, other shareholders include KLM Royal Dutch Airline (7.8 percent), employees (2.4 percent), and other shareholders at 2.8 per cent. says it plans to return to profitability in the year 2024 after an overhaul of its operations.
The airline halted payments of the loan following the Covid 19 global pandemic that led to grounding of global air travel making the airline run into financial difficulty
This is not the first time the government is coming to the rescue of KQ despite recording losses of Sh15.8 billion in the first quarter and Sh9.6 billion by mid-year.
While appearing before the National Assembly’s Committee on Appointments for vetting, new Transport Cabinet Secretary Kipchumba Murkomen revealed plans to reform KQ, splitting it into cargo, passenger, charter services and drone subsidiaries.
