Kenyan and Ugandan taxpayers are set to bear a bigger burden as their respective governments struggle to finance their national carriers.
On Tuesday, Kenya announced a Sh77.5 billion ($750 million) financial guarantee that is now before parliament for approval.
This will possibly increase its shareholding in Kenya Airways, as it seeks to push through the final phase of the airline’s restructuring.
The announcement came days after Uganda met representatives from aircraft maker Airbus, seeking to revive Uganda Airlines.
A few days before the meeting, influential Qatari businessman Sheikh Faisal bin Qassim Al Thani had said that he would be interested in helping revive Uganda Airlines, which collapsed nearly two decades ago.
Uganda’s Privatisation and Investment Minister Evelyn Anite said that they were still in talks with Doha.
“There isn’t anything concrete, but we are optimistic that Qatar will soon join us in reviving Uganda Airlines.
They have a well-developed air transport sector and understand that Qatar Airways is also looking at global expansion and have already acquired a stake in other airlines. We hope this deal will come through,” Ms Anite said.
KQ is banking on the conversion of its $243 million debt to the Kenyan government into equity as part of its restructuring efforts that will see it fly out of the financial crisis that has dogged it over the past three years.
The EastAfrican has seen the sessional paper drafted by National Treasury Cabinet Secretary Henry Rotich on the debt-to-equity swap offers Kenya Airways a lifeline by enabling it extend its loan repayments to 10 years.
The paper was tabled in parliament last week, and shows that the preferred financial restructuring option will see all stakeholders contribute to the restructuring.
According to the document, apart from Kenya converting its debt to equity, it will also provide guarantees worth Sh54.3 billion ($525 million) to cover a loan from US Exim Bank, and a further Sh25.8 billion ($250 million) to the participating local banks as a liability required to enable the airline secure future funding.
Mr Rotich, however, said that the government was yet to decide what loans it will swap and what kind of shareholding it would take.
“Once we get parliament’s approval, we will decide on whether we want to increase conversion of debt to equity. If the airline’s turnaround plan works, then we will just retain our shareholding as it is,” Mr Rotich said.
The Kenya government lent KQ Sh4.1 billion ($40 million) in 2015 to help it meet its obligations. The debt matured last year and was subject to an annualised interest rate of 10.2 per cent.
In September 2015, Treasury guaranteed a further Sh20.6 billion ($200 million) short-term line of credit from the African Export-Import Bank (Afrexim bank) payable by 2018 at a charge of 6.8 per cent. Kenya took up this debt in the financial year to March.
“Although the total guarantee is Sh77.5 billion ($750 million), the most likely downsize case is a Sh7.7 billion ($75 million) drawdown on the guarantee to local banks in the next 10 years,” Mr. Rotich said, allowing banks to offload their shares in the airline in the coming decade to recover their funds.
Should the restructuring plan flop, the Kenyan taxpayer will fork out Sh28.9 billion ($280 million) to be paid out to the banks by the Treasury, with the US Exim Bank portion being asset-backed. This means that KQ will lose its aircraft through an auction, the sessional paper says.
Kenya, through the National Treasury, owns 29.80 per cent of KQ and is the single-largest shareholder followed by KLM with a 26.73 per cent stake. KQ’s total borrowing stood at Sh119.9 billion ($1.16 billion) in the six months to September 2016, meaning that next year’s bridge debt maturity will account for nearly a fifth of the airline’s total loans portfolio.
The airline was technically insolvent late last year when its total liabilities of Sh203.7 billion ($1.97 billion) exceed its total assets of Sh163.3 billion ($1.58 billion).
Michael Joseph, the airline’s chairman said that support from all the airline’s creditors, and stakeholders will see KQ on solid financial footing.
“We have already seen our operating profit improving and reduced our costs and losses. With a healthier liquidity, we will be in a better place to continue serving Kenya and the region at large,” Mr Joseph said.
Kenya Airways is currently Sh149.9 billion ($1.45 billion) in debt. It also emerged in April that Kenyan taxpayers faced the prospect of paying a Sh2 billion ($200 million) debt in 2018 taken from Afrexim bank as a government-backed short-term loan advanced to KQ matured.