Kenya Airways will receive Sh1 billion financial support from the Treasury for the financial year starting July if lawmakers approve the recommendations of the National Assembly Select Committee on Budget and Appropriations.
The Ndinde Nyoro-led committee has asked lawmakers to approve the national carrier's new bailout to partly fund its recurring needs through its report on revenue and expenditure estimates for the 2024/25 financial year that will be discussed and approved later this month.
The funding decline appears to be in line with the government's policy of ending bailouts for cash-strapped state-controlled entities in favor of restructuring.
The Treasury, as KQ's major shareholder, was forced to continue providing financial support in a move that reversed its previous pledge to end bailouts against the backdrop of a lengthy process to land a strategic investor for the loss-making airline.
However, funding has been significantly reduced from the tens of billions of shillings that taxpayers have pumped into KQ annually in recent years to keep it afloat against the backdrop of deep cash flow challenges, exacerbated by travel restrictions caused by the Covid-19 pandemic. In 2020.
The airline failed to service loans guaranteed by the government, taking on liabilities worth billions of shillings this financial year.
The taxpayer spent Sh17.4 billion in the nine months to March 2024 to service a $641.49 million loan (about Sh83.4 billion under prevailing dollar conversion rates of Sh130 per unit) that it took in 2017 to purchase seven aircraft and an engine.
The loan, which has a repayment period of 12 years, was originally provided by US lenders Citibank and JP Morgan before the US private export finance company (BEFCO) took over the loan with US Exim Bank and the Kenyan government as guarantors.
The Treasury guarantee covered $525 million (Sh68.3 billion) which it later converted into external public commercial debt that is now serviced by taxpayers.
The financing proposal came at a time when the National Assembly's Debt and Privatization Committee demanded that KQ management present a new recovery plan that would wean it from government bailouts.
A series of losses forced KQ to reach out to the Treasury for financial support for bailouts.
“Within 30 days of the adoption of this report, Kenya Airways must submit to the National Assembly a factual and comprehensive report on its strategy and measures in place to replenish public resources used in the repayment of secured debts,” the committee wrote in the report submitted to the House of Representatives: “Cash bailouts, And expenses related to the debts borne by the National Assembly.”
The airline narrowed its losses to Sh22.6 billion in the year to December from Sh38.2 billion the previous year.
The Treasury had earlier indicated that the loan installments would be recovered by the government on behalf of KQ through a sub-loan agreement between the government and the airline, as stipulated in the Public Finance Management Act 2012.
However, the Public Debt and Privatization Commission raised a red flag that taxpayers risk losing installments after converting the guarantee into senior debt, which is contrary to the provisions of the Public Finance Management Law.