Kenya Airways set to convert government loan into equity in restructuring move
Kenya’s national carrier, Kenya Airways has confirmed it has received the government’s support to the restructuring efforts. Cabinet has approved the terms of this support, which will be submitted to the National Assembly for approval by Treasury Cabinet Secretary Henry Rotich.
The support confirmed by the Cabinet included conversion of the Government of Kenya loans into equity, and provision of contingent guarantees subject to parliamentary approval in exchange for material concessions to be provided as part of the financial restructuring, which would secure future funding of the company and would more importantly NOT require Government to provide CASH as part of the restructuring.
The Cabinet took note of the strategic importance of KQ to the economy, and the efforts so far made in the restructuring of KQ and that these efforts are delivering positive results on the operational side of the business as reflected in the company’s full year results for FY2016/17.
The Cabinet also noted that to achieve the required turnaround, the company also requires a financial restructuring to reduce the overall debt burden on the Balance Sheet and to extend the repayment period for its debt. This would stabilize the company and allow it to meet its obligations and facilitate long term growth. By so doing, it would also position the company to continue playing its crucial role in the economy.
“The Government continues to support Kenya Airways as it is a valuable national strategic asset. As a major shareholder, we are keen to secure the airlines future and ensure it has a healthy liquidity profile and remains operational,” said CS Rotich. “The proposed restructuring of the airline will generate concessions from all stakeholders and the re-capitalisation of the business.”
Transport Cabinet Secretary James Macharia noted the invaluable importance of the airline to the broader economy with a trickle-down effect supporting thousands of Kenyans including employing over 4,000 people directly and over 140,000 jobs indirectly.
“The aviation sector continues to play a major role in the country’s development and position as a major hub in the region contributing to about 10% of the GDP. Kenya Airways, as the national carrier, plays a major role in driving the country’s competitiveness, and diplomacy and what we have settled for is the best interest not only of the airline but the country at large,” said CS Macharia.
Michael Joseph, the airline’s Chairman said: “The full support of all the airlines creditors, principal shareholders and other stakeholders will see this transaction, once it is completed, position Kenya Airways for a new era of sustainable growth via a deleveraged balance sheet and a healthy liquidity profile. We are grateful for the support obtained from the Government and urge the National Assembly to give its approval to allow KQ remain the Pride of Africa”.
He further added “Already we have seen our operating profit improving and reduced our costs and losses. With a healthier liquidity, and at no cash cost to the Government, the airline will be in a better place to continue with its operations serving Kenya and the region at large”.