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Kenya Airways Restructuring: Treasury Denies Funding

Kenya Airways (KQ) is among several government entities that the Treasury has declined to provide funding for in the upcoming fiscal year starting on July 1, as part of the restructuring process.

During a parliamentary session, Chris Kiptoo, the Permanent Secretary of the Treasury, stated that KQ had not received any financial bailout for the year 2023/24.

“We have reduced the funding for KQ, which had previously received a substantial bailout in the previous and current budgets,” Kiptoo mentioned.

He further added, “We have prepared a Cabinet memorandum outlining the turnaround strategy for Kenya Airways, which is currently under review by the Cabinet’s subcommittee. The memorandum will be presented to the full Cabinet next week.”

Dr. Kiptoo informed the Finance and Planning committee of the National Assembly that the Treasury has formulated various options to rescue the struggling national carrier.

“Do we dissolve KQ? Do we restructure it? Or do we seek a strategic investor? These are some of the questions we are seeking answers to. Once the Cabinet makes a decision, we will proceed with any of the options presented,” Dr. Kiptoo stated.

While defending the Treasury’s budget for 2023/24 before the committee, Dr. Kiptoo disclosed that the allocation for Budget Formulation, Coordination, and Management had been increased by Sh2.5 billion, primarily due to a decrease in government investments, including those in KQ.

He confirmed that KQ had received a bailout of Sh36 billion in the 2021/22 financial year, followed by Sh20 billion in the current financial year, which was later reduced to Sh10 billion in the Supplementary Budget issued in April.

“I hereby confirm that there is no allocation for KQ in the 2023/24 financial year,” Dr. Kiptoo responded to questions raised by committee chairman Kuria Kimani, who sought to understand why the government had chosen to decrease its investments in corporations like KQ.

Kimani requested specific details regarding the amount of funding that the Treasury had provided to support Kenya Airways and inquired about alternative sources of funding for the airline.

Dr. Kiptoo mentioned that the government had guaranteed KQ $75 million, which needed to be budgeted for loan repayments.

“We are currently honoring the debt, but we have presented a proposal to the Cabinet to strengthen KQ’s financial position. We are also exploring aircraft leasing as a potential avenue for revenue generation. We believe there are financial opportunities in that area,” Dr. Kiptoo explained.

“We aim to bring KQ back to its successful state during the years 2001 to 2011, before Project Mawingu was implemented and things went awry.”

Dr. Kiptoo emphasized that, apart from the debt, KQ is currently performing well, and with support, it can return to profitability.

In the fiscal year ending in December, KQ’s net loss more than doubled, reaching a record Sh38.26 billion, primarily due to increased financing costs following the government’s assumption of one of the dollar-denominated loans.

The net loss increased by 1.4 times compared to the Sh15.87 billion recorded in 2021, resulting in the national carrier’s accumulated losses reaching Sh172.68 billion.

In March, the board announced that the airline is on track to break even this year and achieve profitability by 2024—a feat it has not accomplished since 2012, when it closed with net earnings of Sh1.66 billion.

While total income increased from Sh70.22 billion to Sh116.87 billion, KQ experienced a significant net loss due to a Sh18 billion finance cost that was included in the income statement after the government took over the servicing of one of the dollar-denominated loans.

Costs surged from Sh86.4 billion to Sh155 billion, primarily driven by a 160 percent increase in fuel prices, amounting to Sh26.91 billion. Additionally, other direct operating costs rose by Sh12.4 billion due to increased capacity.

Last year, the government assumed the $525 million debt it had guaranteed for KQ after the airline defaulted on payments.

As we move forward, the Treasury has embarked on implementing measures to address the financial challenges faced by Kenya Airways. These efforts include exploring potential restructuring options, seeking strategic investors, and evaluating the possibility of discontinuing the airline altogether.

The government remains committed to improving KQ’s financial stability and has proposed initiatives to enhance the airline’s balance sheet. One area of focus is the leasing of aircraft, which presents potential revenue-generating opportunities.

The ultimate goal is to restore Kenya Airways to its previous successful state, reminiscent of the years between 2001 and 2011 when the airline thrived. However, challenges arose with the implementation of Project Mawingu, leading to a decline in performance.

Dr. Kiptoo reiterated that, excluding the debt burden, Kenya Airways is currently performing well. With adequate support and strategic measures, it has the potential to regain profitability and contribute to the country’s aviation sector.

Looking ahead, the government will make informed decisions based on the Cabinet’s deliberations. The Cabinet memorandum outlining the turnaround strategy for Kenya Airways will be presented in the upcoming week, shedding more light on the proposed actions and potential paths for the national carrier’s revival.

The Treasury’s decision to withhold funding for Kenya Airways in the 2023/24 financial year reflects the government’s commitment to fiscal prudence and responsible allocation of resources. It underscores the need for a comprehensive assessment and restructuring plan to ensure the long-term viability and success of the airline.

The future of Kenya Airways lies in finding sustainable solutions, whether through strategic partnerships, operational improvements, or exploring alternative revenue streams. The government remains focused on supporting the national carrier’s recovery, while also prioritizing the efficient use of public funds for the benefit of the nation as a whole.



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