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Despite settlement of USD 17 million debt, Kenya Airways faces headwinds

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Kenya Airways has been hit with flight disruptions due to the crew shortage

As per the latest reports, Kenya’s National Treasury has paid Ksh2.7 billion (USD 17.62 million) in Kenya Airways (KQ) guaranteed debt in the three months to the end of September 2023 after inheriting the burden from the African nation’s national carrier.

The repayments include Ksh2.37 billion (USD 15.5 million) for principal repayments and Ksh351.29 million (USD 2.3 million) for interest payments.

“The fresh instalment brings cumulative exchequer payments on the KQ guaranteed debt to Ksh13.35 billion (USD 87.1 million) with the first payment having been done in the quarter ending in December 2022,” Zawya reported.

“The total amount paid on guaranteed loans during the first three months of FY 2023/24 amounted to Ksh2.72 billion, which was payment for Kenya Airways loan comprising of Ksh2.37 billion for principal repayment and Ksh351.29 million for interest payments,” the Kenya Controller of Budget (COB) noted.

In 2022, the Kenya Treasury informed the IMF (International Monetary Fund) about taking over the debt contracted by Kenya Airways in 2017 from the USA Export-Import Bank (Exim). The African country took the step to facilitate the better management of risk for its national carrier including the potential call-up of the guarantee.

In February 2023, Treasury Principal Secretary Chris Kiptoo told MPs that Exim Bank USA had handed in a default notice after the KQ made a delayed payment of the guaranteed loan.

Despite paying down more than Ksh13 billion (USD 84.83 million), KQ’s guaranteed debt has soared by 13.4% since September 2022 to Ksh87.36 billion (USD 570 million) from Ksh76.97 billion (USD 502.3 million), due to the sharp depreciation of the Kenyan Shilling.

KQ’s debt takeover by the exchequer, known as debt novation, is dubbed as a part of the airlines’ wider restructuring, seeking to support the carrier cost-effectively.

The plan will incorporate additional capital injection by the state, along with cost cuts and network optimisation. Key Performance Indicators (KPIs) will also be set up for the KQ senior executives.

Meanwhile, the airline has warned of impending flight disruptions, due to the problems it is facing in the aircraft spare parts global supply chain. Kenya Airways Group Managing Director and CEO Allan Kilavuka said that the capacity shortage might persist for “approximately two weeks”.

Kenya Airways has now been hit with flight disruptions due to the crew shortage. The phenomenon, which started in December 2023, has now created a situation for the venture where it will have to forego any chances of making profits, as it faces the pressure of compensating the passengers being affected by the flight disruptions.

As per the media reports, on December 13 and 14, some 17 flights got delayed. For flight cancellations, especially on the European routes, KQ will have to refund per passenger some Sh92000.

Kenya Airways’ fleet has two B737-300s, eight B737-800s, nine B787-8 Dreamliners, and thirteen E190ARs. Of the overall lot, E190 5Y-KYS (msn 19000478) has been out of service in Nairobi since late October.

The venture has already taken the delivery of its first B737-800 freighter and plans to add a second unit of the type by February 2024.

Kenya Airways will utilise the aircraft on routes to destinations like Sharjah, Dubai World Central, Jeddah, Riyadh, Dakar Blaise Diagne International, Lagos, N’Djamena, Mogadishu, Mumbai International, Freetown, and Monrovia Roberts.

The airline is seeking a strategic investor as it battles foreign exchange volatility negatively impacting its turnaround strategy despite its recent KES998 million shilling (USD 6.6 million) operating profit.

Kilavuka, while briefing the Parliamentary Transport and Infrastructure Committee on October 24, said that with limited government support and growing foreign currency-denominated debts, the carrier had no alternative but to seek a strategic investor.

Kilavuka said that the venture was aiming to achieve a capacity growth of 23% in 2025 and 16% in 2026.

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