Struggling Kenyan national carrier, Kenya Airways (KQ) and utility firm Kenya Power will get a bailout of Ksh37.3 billion ($300 million) in the current financial year to support restructuring at the two state-owned entities to wean them off annual government funding.
The funding is part of fiscal consolidation conditions set by the International Monetary Fund (IMF) as the lender presses the government to accelerate reforms at parastatals, many of which are in perennial loss-making positions, to return them to profitability.
Kenya’s National Treasury expects to spend a total of Ksh54.8 billion ($444.8 million) to bail out struggling state-owned enterprises in the financial year 2021/22 and 2022/23 causing a strain on the budget.
KQ will receive Ksh34.95 billion ($283.7 million) and Kenya Power will get Ksh2.35 billion ($19.1 million) in the allocation which is less than that in the original budget for the financial year 2022/23 after the supplementary budget cut the funding by Ksh8.7 billion ($70.6 million).
Kenya Airways debt
The airline, which is mired in $835 million (Sh102.82 billion) worth of debt, had by September already received Ksh10 billion ($81.2 million) from the Treasury to help service its debts.
KQ has payables amounting to Ksh44 billion ($357 million) owed to aircraft lessors, operation, and maintenance costs, landing and rental fees, fuel costs, rent, navigation, handling charges, and taxes.
The Kenyan Treasury says the bailouts to KQ are already bearing fruit after the lender reduced its operating losses in the first half of 2022 by 31.5 percent to Ksh5 billion ($40.5 million), adding that the airline would have turned a profit in the absence of higher fuel prices.
“Commercial performance paired with initiatives under the restructuring plan have already had a positive impact on KQ’s solvency issues,” said the Treasury.
As part of KQ’s restructuring, the airline is optimising its network to cut 12 loss-making routes and has already retired flights to 16 destinations globally.
Reduce fleet size
The carrier will also reduce its fleet size by terminating some aircraft leases and eyes negotiations with operating lessors to cut its annual lease costs.
KQ is also targeting to lay off staff to reduce staff costs and is eyeing further cuts in other costs including operations and maintenance, distribution costs, ticketing, procurement, and fuel costs.
“The government will continue to support KQ financially in the financial year 2022/23 to facilitate normalisation of overdue payments to prevent defaults for settlement of operating lessors’ arrears and completion of payments, as well as other working capital support,” said the Treasury.
Kenya Power will on the other hand use the Ksh2.35 billion ($19.1 million) bailout to address the liquidity gap left by the reduction of electricity tariffs in January. The cut in power tariffs ends this month.
The company has already received Ksh7 billion ($56.8 million) in budgetary allocation to support the tariff reduction that is estimated to punch a Ksh26 billion ($211 million) hole in the utility’s revenues.
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