The Kenyan government will decide by the end of July 2023 on a new restructuring plan for Kenya Airways (KQ, Nairobi Jomo Kenyatta), which is dealing with a negative equity position of KES108 billion shillings (USD 759.6 million), according to the International Monetary Fund (IMF).

In its July 2023 status report on Kenya, the IMF discloses that a detailed business restructuring action plan for Kenya Airways prepared in May 2022 "has been put on hold to reassess the least-cost approach for the [national] budget". "It is the stated objective of the government that Kenya Airways (KQ) should be weaned off budgetary support by December 2023."

"In this regard, the government, in November 2022, directed the Ministry of Roads and Transport and National Treasury to review the current and other restructuring strategies for KQ and recommend the optimal strategy with the least fiscal impact to the government. A draft memorandum with strategic options and recommendations has been submitted to the Cabinet for discussion. It is expected that a decision will be ready by end-July 2023. Once the government gives direction on the way forward, a new plan will be implemented, and financial resources will be committed to the same if needed. Meanwhile, government financial support in 2023 has been limited to the payments under the guaranteed senior external debt, while discussions continue on novating the debt," the IMF disclosed.

It pointed out that Kenya Airways' indebtedness remained high. "As of end-December 2022, KQ had total outstanding liabilities of KES277 billion (USD1.9 billion), including outstanding claims on KQ by the government on account of its past and ongoing support, of which KES160 billion (USD1.1 billion) were long-term liabilities. Of the KES117 billion (USD823 million) of short-term liabilities, KES43 billion (USD302.4 million) comprises outstanding trade and other payables. These arrears include fuel (11%), landing fees (24%), leases (10%), payroll (10%), and taxes/statutory dues (11%). The company is in a negative equity position of KES108 billion (USD759.6 million)," the report said.

The IMF highlighted that the government, in its Supplementary Budget for FY2022/23, proposed a provision for Kenya Airways at KES19 billion (USD133.6 million), a decline of KES11 billion (USD77.3 million) from the original budget. As of mid-May 2023, Kenya Airways had received KES10 billion (USD70.3 million) of the FY2022/23 allocation.

The government was currently servicing the debt payments on Kenya Airways' guaranteed senior external debt, which the airline failed to service, and has so far paid USD95 million as of end-April 2023 on the airline's behalf.

The IMF said the government is evaluating various strategies and options to turn around the airline with minimal budgetary implications and the least fiscal impact.

"Fresh policy direction is being sought in dealing with challenges at KQ. While KQ made progress under its business reorientation plan focusing on cost savings (e.g., fleet and route optimisation, other cost management), it faced difficulty negotiating collective bargaining agreements."

The authority advised that the optimal strategy for Kenya Airways should be based on the least cost to the Treasury. "The new administration's privatisation goals should also be supported by expediting progress in the SOE [state-owned enterprises] governance and oversight reform agenda," it said.

Meanwhile, citing documents submitted to the Kenyan parliament, Business Daily reports that the government will spend KES61.3 billion (USD431.3 million) in the next four years to service Kenya Airways' loan from EXIM Bank (United States of America). "By June 2027, a total of KES61.3 billion will be paid on the same (guaranteed loan). Since these are taxpayer resources, a value for money review is being undertaken."

As reported, the government's repayments of guaranteed loan debt for Kenya Airways are set to increase by KES1.43 billion (USD10 million) or 10% from KES14.68 billion (USD104.1 million) to KES16.10 billion (USD114.1 million), according to a report tabled recently by the government's Debt and Privatisation Committee.

On July 17, the IMF announced it had completed its fifth review under its Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements for Kenya. It approved an extension of the EFF/ECF arrangements from the current 38 months to 48 months (until April 1, 2025) to allow sufficient time to implement the country's economic reform agenda, which was progressing. It also greenlighted an immediate disbursement of about USD415.4 million to Kenya, bringing total disbursements under the arrangements so far to about USD2.04 billion. The IMF warned that "tighter financing conditions also require a prudent debt policy and continued efforts to prioritise concessional loans".

It added: "Sustaining the momentum in the structural reform agenda will require prioritising strengthening public financial management systems; management of fiscal risks from state-owned enterprises—including by enhancing their governance and oversight; enhancing the anti-corruption framework; [...] and ensuring effective expenditure audits for transparency and accountability," it stated.