Taxpayers to now foot new KQ’s Sh39bn bill from July

Taxpayers will foot a Sh38.86 billion bill in the financial year starting July 1 to keep cash-strapped Kenya Airways in the skies and clear its due interest payments on State-guaranteed loans.

The Parliamentary Budget Office (PBO) has revealed that the State will spend Sh2.26 billion to meet interest payments for a debt guarantee for the airline.

This is in addition to the Sh36.6 billion the government has allocated to bail out the airline in fiscal 2022/23 from July, bringing to Sh38.68 billion the total amount taxpayers will shoulder to rescue KQ.

The limping airline has been extending begging bowls to the government for bailouts to maintain its grounded planes, pay salaries as well as utility bills such as water and electricity.

Also Read: Kenya Airways defaults on Sh25bn State loans

The State guaranteed a $525 million (Sh61 billion) long-term loan taken by KQ from the Export-Import Bank of the US to address its cash-flow problems and a further $225 million (Sh26 billion) short-term loan from local banks to support its working capital needs.

Identify actions

PBO — the unit which advises Members of Parliament (MPs) on financial and economic matters — has called for a review of KQ’s debts to identify actions the government can take to lower its repayment obligations even as the State aims to shift from bailing out the airline to meeting its debt serving costs only.

“It is, therefore, critical that a review of the composition of the portfolio, and the financial status of institutions whose loans have been guaranteed to establish embedded risks and whether remedial measures can be taken to avoid further materialization of the guarantee liability,” it said.

This comes as MPs allocate the airline a Sh20 billion rescue package through the supplementary budget, which will see KQ gobble up Sh58.86 billion of taxpayers’ funds in one year.

But what will worry taxpayers is that the National Treasury last year disclosed taxpayers could be forced to repay a total of Sh1.3 trillion in debt that the government has guaranteed 18 struggling parastatals, including KQ, in case the State firms fail to meet their obligations.

Also Read: The worst route for Kenya Airways revenues

In the 2022 Budget Policy Statement, Treasury revealed that the firms have accumulated Sh343 billion in commercial loans from banks, Sh664 billion on-lent by the government, and require bailouts of Sh211 billion to stay afloat.

Loss-making spree

The PBO estimates that between the financial year 2020/21 and the end of 2022/23, KQ will have received Sh83.1 billion in cash bailouts to keep it operational during its loss-making spree, and that by fiscal 2025/26, a total of Sh72.2 billion will be incurred to meet payment of called-up State-guaranteed debt.