Kenyan Taxpayers Bear Burden as Government Assumes Kenya Airways’ $641M Debt

The Kenyan government has assumed the responsibility of servicing a substantial loan originally taken by the national carrier, Kenya Airways (KQ).

The loan, amounting to $641.49 million (Sh83.4 billion), was provided by US lenders Citi Bank and JP Morgan in 2017 and was intended to finance the acquisition of seven aircraft and an engine. However, Kenya Airways encountered financial challenges, exacerbated by the disruptions caused by the Covid-19 pandemic which hindered its ability to fully service the debt. The situation escalated further when the airline defaulted on its obligations to the US Exim Bank, prompting the Kenyan government to intervene.

The Treasury’s guarantee, covering $525 million (Sh68.3 million), was converted into external commercial public debt, effectively transferring the burden of loan servicing to taxpayers until maturity. The recent Supplementary Budget II estimates shed light on the intricate debt conversion process. In the fiscal year 2023/24, Kenya Airways PLC’s guaranteed debt was transformed into mainstream external public debt stock. Simultaneously, a new external commercial loan owed to Exim Bank USA and Private Export Funding Corporation (PEFCO) was recorded.

The servicing of this new loan will incur substantial costs for taxpayers, with interest and principal payments amounting to Sh14.3 billion and Sh20.9 billion in 2023/24 and 2024/25, respectively. Furthermore, additional payments of Sh21.3 billion and Sh10.7 billion are projected for 2025/26 and 2026/27, respectively. While the government’s intervention ensures continuity for Kenya Airways, it has raised concerns within the Public Debt and Privatisation Committee of the National Assembly.

The committee warns that taxpayers may potentially lose out on repayments due to the conversion of the guarantee into mainstream debt, contradicting the provisions of the Public Finance Management Act. Nevertheless, removing the debt from Kenya Airways’ books is viewed as a positive step for the airline’s restructuring efforts, potentially making it more attractive to strategic investors.