The Cabinet has approved a decision to have the Government of Kenya take over the payment of a $525 million US Export-Import Bank loan it guaranteed for Kenya Airways (KQ), after the national carrier failed to meet its repayment obligations.
The lender of the loan is Private Export Funding Corporation (PEFCO) of USA and guaranteed by Exim Bank of USA who in turn were guaranteed by the Government of Kenya.
In its latest Annual Debt Management Report (2021/2022 fiscal year), National Treasury reports that the government in 2017 guaranteed part of the $841.6 million 10-year facility running until FY2027/28 that the airline took to purchase seven aircraft and one engine.
However, Kenya Airways halted payments on the guaranteed and the non-guaranteed portions of the loan, as it ran into financial difficulty exacerbated by the COVID-19 pandemic, which led to the grounding of most global air travel.
Following the default, Kenya Airways sought GoK intervention and the Cabinet gave approvals for the Government to pay the loan arrears on behalf of KQ and the loan balance to be novated to Government.
The arrears have been paid and the novation process is on-going and is expected to be finalized in the FY2022/23.
Novating a loan means that the existing lender’s rights and obligations are completely cancelled and discharged and the new lender assumes new, but identical, rights and obligations in their place.
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.
Kenya Airways plans to return to profitability in 2024 after overhauling its operations.
KQ is 48.9% owned by the government and a group of 10 local banks which own 38.1% of the shares. Other shareholders include KLM Royal Dutch Airline (7.8%), employees (2.4%), and other shareholders at 2.8%.