KQ took the nearly billion-dollar loan in 2017 in its quest for fleet expansion. The hefty sum would enable the carrier to purchase 7 aircraft and 1 aircraft engine. The hope was that KQ would be able to increase its capacity, and in turn profitability – the airline has a history of being loss-making.
When KQ – partly state-owned – took the loan, the Kenyan government agreed to pay $525 million to the bank should KQ default on the loan.
After the airline collected the loan, it started making its scheduled payments on it. However, 3 years later, the pandemic saw KQ make crippling losses which hindered them from making the loan repayments. The airline has barely recovered even as the travel sector is picking up again.
The default on the loan therefore triggered the monetary sum clause which entailed the Kenyan government’s intervention.
A spokesperson for the US National Treasury shared in a press release that the carrier had defaulted on the loan, and that the treasury is “novating the debt to be finalised during the 2022/2023 fiscal year”. This means the original contract with KQ will be terminated and replaced with another. The spokesperson said KQ had defaulted on both the guaranteed portion of the loan amount and the non-guaranteed portion.
However, KQ countered this claim in a statement, explaining that the figure quoted by US treasury was inaccurate and that it was only because of the pandemic and its resultant effects that the airline had been unable to pay.
Kenya Airways CEO Allan Kilavuka said, “The value you quote for the US Exim facility is not correct; $485 million is what relates to the US Exim guaranteed debt. I don't have the context... maybe they have included other guarantees, not just the US Exim facility.”
The airline has since called on the Kenyan government to do good on its obligation by paying the debt.
The Path to Profits
Kenya Airways predicts that it will finally turn a profit by 2024 as a result of ongoing major internal restructuring plans.
These plans include a cut-down on its network, fleet and (possibly) workforce. By selling off and sub-leasing some of its planes, the airline can rake in significant revenue at almost no added cost. The airline currently operates a fleet of 41 aircraft, 18 of which its owns while the other 23 are being leased.
The airline has also recently moved to expand its cargo business by converting two of its passenger aircraft to freighters.
Aside from the unpaid debt, the airline has seen its fair share of financial struggles in recent times. Kenya Airways is also suffering the effects of the trapped funds owed by African countries who are experiencing dollar shortages – Nigeria being chief among them. The airline has had to carry on operating even with much of its revenue being inaccessible.
Sources: Simple Flying, The East African.