The KQ bailout plan has jumped to Sh35 bn

The Government will offer Kenya Airways (KQ) an additional Sh26.5 billion shareholder loan as part of the bailout to the national carrier, revealing new secret channels in the supplementary budget used to pump up to Sh36 billion into the national carrier.

The loan will be channelled through the National Treasury investment in public enterprises along with the Sh8 billion directly from the Treasury and Sh2 billion from the Transport Ministry to ease the effects of the virus that has obliterated global demand for travel.

Read also: Treasury is betting big on agriculture to steer post-pandemic recovery

The Sh26.5 billion loan could be convertible into shareholding if the airline fails to pay diluting other shareholders including Air France-KLM, local banks and retail investors.

Just four years ago the government converted Sh27.2 billion loan into shares increasing its stake in the carrier to 48.9 per cent from 29.8 per cent.

The National Treasury said it has not factored in a similar conversion nor assessed how much stake the new loan will avail to it even as the government prepares to nationalize KQ.

“The Government is developing strategies to  improve  operational efficiency of Kenya Airways to ensure it remains afloat,” Treasury said in the Budget policy statement.

The government has pumped billions of taxpayers’ money into Kenya Airways over the last few years to turn around the company fortunes after a string of huge losses which have kept the airline barely operational.

The weak airline was then hit by Coronavirus pandemic which saw a freeze on all cross-border passenger flights imposed on March 22 and restriction of movement into and out of four counties including Nairobi, Mombasa, Kwale and Kilifi to curb the spread of the virus.

Although Kenya Airways resumed domestic flights in mid-July after the government cleared local air travel, and international flights were restarted on August 1 the damage was already been done as half year losses had doubled.

First-half pre-tax losses for the period to June were Sh14.36 billion as Covid-19 derailed travel and slashed revenues. This compared to a Sh8.56 billion loss in the same period a year earlier.

Turnover in the review period plummeted 48 percent to Sh30.21 billion.

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