Kenya Airways (KQ) has failed to pay interest on a 25 billion shillings loan taken out by the government to help it weather the Covid-19 disruptions, underscoring the national carrier’s over-indebtedness.
The airline reveals in the latest annual report for the period up to December 2021 that it has not honored the interest payment on the loan, which was issued in two installments to prevent it from collapsing .
“As of December 31, 2021, the group and the company have not made any interest payments on the Government of Kenya loan as stated in the loan agreements. The loan agreements require the payment of interest no later than June 20 each year,” the airline explains.
The default prompted KQ to seek a waiver from the government to defer unpaid interest on the shareholder loan, a request which was granted.
KQ skipped interest payments during the state bailout disbursement period to start the restructuring process, which has been delayed.
The government is KQ’s largest shareholder with a 48.9% stake and has listed the airline as a strategic asset for the country, especially for its role in transporting exports.
The state lent KQ Sh11 billion in 2020 and advanced the second tranche of shareholder loans amounting to Sh14 billion last year to enable the airline to maintain operations during and after the Covid-19 disruptions .
The loan is repayable after five years and bears interest at the rate of 3% per annum, with accrued interest being payable no later than June 20 of each year.
KQ now has less than three months until the next interest payment is due.
The airline managed to reduce its net loss for the full year by 56% to 15.88 billion shillings from 36.22 billion shillings in 2020, helped by cost cutting and revenue recovery.
KQ also failed to honor covenants on various other loans, including those from the African Export-Import Bank, Citibank NA and JP Morgan NA.
The loans, taken out for the purchase of aircraft and the financing of deposits before aircraft delivery, require the airline to guarantee an unrestricted cash-to-revenue ratio and debt service coverage ratio.
KQ requested and obtained approval for a waiver of the conditions, which avoids having to classify the long-term loan as a loan repayable in less than one year.
In total, the airline closed last year with borrowings amounting to 107.09 billion shillings, an increase from 92.54 billion shillings in the previous similar period.
National Treasury Cabinet Secretary Ukur Yatani on Thursday hinted at job cuts at the airline as it embarks on a 147 billion shilling multi-year restructuring program that includes the assumption of debt.
Mr Yatani said the airline will have to downsize its network, streamline flight frequencies, operate a smaller fleet and streamline its workforce.
The airline in 2020 lost 1,123 employees, including 561 due to voluntary resignations or early retirements.
Last year, it also lost 365 additional employees by the same route to end the year with 3,544 employees.