By PETER MBURU

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Kenya has exuded hope of getting an investor for the ailing Kenya Airways (KQ) by June, even as it pursues parallel options of merging the national carrier with profitable state firms and selling them as a package.

Disclosures by the Treasury to the International Monetary Fund (IMF) show that the new investor will be expected to pump cash into the loss-making airline, with the government keen to wean it off frequent cash support.

The report released by IMF on Wednesday showed that the government is pursuing the two options — engaging a potential equity investor through a consultant procured in December and exploring the possibility of privatisation through merging of KQ with other target companies and setting up a fund to manage them but aiming to close either deal by end of June.

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“The government directed KQ to onboard a consultant to support the onboarding of an equity investor who can inject capital into the business. The procurement of the consultant is in the final stage and should be completed by the end of December 2023 with the aim of closing the deal by the end of June 2024,” Treasury told the IMF.

The government notes that the airline has been in the red over the past decade and now appears determined to use any strategy that will work.

Since 2020, when Covid-19 struck global economies, KQ has incurred cumulative losses totalling Ksh112 billion ($691 million by June 2023), a fifth of which was incurred in the first six months of 2023.

The airline incurred a net loss of Ksh36.2 billion ($223.5 million) in 2020, Ksh15.8 billion ($97.5 million) in 2021 and Ksh38.26 billion ($236.2 million) in 2022 -- the largest annual loss ever recorded by a Kenyan company. The airline also continued to operate on a negative equity position of Ksh133 billion ($821 million) by June last year, carrying liabilities that totalled Ksh302 billion ($1.86 billion), which surpassed its assets.

To stem fiscal risks emanating from investments in KQ, the government has also taken over loans it had guaranteed the airline, currently valued Ksh58 billion ($358 million), which Treasury continues to service, but sale of all or part of the government’s shares in the airline remains the end game.

“In a parallel measure, the government is also exploring a privatisation mechanism where some target companies are consolidated, and a fund set up to manage them. We are engaging the consultants who delivered the model to advise on the same," Treasury wrote to the IMF.

“The model of the fund is meant to package both profitmaking and loss-making entities hence sharing interest in the unattractive companies in pursuit of the attractive ones by investors. A decision on the same shall be made by the end of June 2024."

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The latter proposal has striking resemblance with the shelved National Aviation Management Bill, 2020 that had proposed a merger of KQ with the Kenya Airports Authority (KAA) and have them managed by a holding company.

The government’s objective is to wean KQ off its budgetary support, having spent billions of shillings as bailouts for the airline every year, yet the company shows no signs of improvement in its financial performance.

In November 2022, the government directed the Ministries of Roads and Transport, and the National Treasury to review restructuring strategies for KQ and recommend the optimal strategy with the least fiscal impact to the government.

A draft Cabinet Memorandum with strategic options and recommendations was submitted to the Cabinet in May last year, on which the Cabinet made suggestions for further discussions.

“It is expected that a decision will be ready by end-April 2024. Once the government gives direction on the way forward, a new plan will be implemented, and financial resources committed to the same if needed with an understanding that it will have to be accommodated within the fiscal consolidation path consistent with reducing Kenya’s PV [present value] of overall debt to GDP to 55 percent by 2029,” Treasury told the IMF.

It said the government's financial support to KQ in 2023 was limited to the payments under the guaranteed senior external debt.

At the center of KQ’s poor financial health has been huge costs that water down the billions of shillings the airline makes in revenues, mainly fuel costs, costs to repay loans and fleet maintenance costs.

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During release of the half year results for 2023, the airline’s management remained optimistic on the outlook of its financial operations, noting that at operational level, KQ had crossed the red and became profitable.

“Operational results show that the company is viable. For the first time in six years, we have made an operating profit, which is clearly a testament of the hard work we put in, to turn around this business,” KQ Managing Director, Allan Kilavuka, said in August.

Despite its losses, the airline is seen by some as a critical national asset, bringing in tourists and bolstering Kenya's position as a regional transport and business hub.