In Summary
  • Project Simba Memorandum and dated February 20, paints a desperate picture of an airline, which has no cash flow buffer and whose level of revenue does not allow it to generate positive cash flow.

  • The government issued a sovereign guarantee to local banks that turned their debt into equity, and in the event of KQ’s collapse, they could cash $750 million (Sh75 billion).

National carrier Kenya Airways is grappling with a Sh220 billion debt and needs a government bailout to compete favourably with foreign airlines flying into Nairobi, a confidential report recently tabled in the Cabinet shows.

The document, titled Project Simba Memorandum and dated February 20, paints a desperate picture of an airline, which has no cash flow buffer and whose level of revenue does not allow it to generate positive cash flow.

DEBT INTO EQUITY

“Kenya Airways board and management wish to warn that without immediate remedial action, the company may revert to technical insolvency,” notes the document.

Immediate repossession

Sources say the report was first handed to President Kenyatta, who then asked Transport Cabinet Secretary James Macharia to rework it as a Cabinet paper.

It was this Cabinet paper that approved the running of Jomo Kenyatta International Airport by Kenya Airways (JKIA), abbreviated as KQ, much to the chagrin of the Kenya Airports Authority (KAA) and the aviation workers’ union.

“Insolvency of the airline will result in the immediate repossession of aircraft and engines by lessors and trigger the $750 million (Sh74 billion) government guarantee in place on behalf of Kenya Airways,” notes the document.

The government issued a sovereign guarantee to local banks that turned their debt into equity, and in the event of KQ’s collapse, they could cash $750 million (Sh75 billion).

Among the proposals given to save the troubled airline is the government buyout of its foreign partner KLM, banks whose debts were turned into equity, and minority shareholders.

NATIONAL ASSET

The government has also been asked to oversee the delisting of KQ, manage its nationalisation, and protect it as a national asset.

“Kenya Airways should be treated as a national asset… and not a financial one because it is the only carrier interested in the growth of the Nairobi hub,” says the document, which was accepted by the Cabinet.

With 60 per cent of business at JKIA derived from KQ, insiders say the airline’s collapse would lead to closure of several terminals and reducing the airport to a white elephant.

The government is currently the majority shareholder in KQ, with a 48.9 per cent stake.

KQ Lenders 2017 Limited is the second largest shareholder at 38.1 per cent, and KLM the third with 7.8 per cent. The rest is shared out among minority shareholders (2.8 per cent) and KQ employees (2.4 per cent).

“For 17 years, before competition arrived, KQ was one of the most profitable airlines on earth, but this market has dramatically changed. KQ has made mistakes in the past, but we have to either face the competition or copy their model or they will run us out of town,” says the airline’s CEO, Mr Sebastian Mikosz.

He proceeds to warn: “We either change the mandate of KQ or we sink.”

TURNAROUND PLAN

It is the proposal to form a Kenya Aviation Holding Company to operate all airline businesses that sparked this week’s strike after Kenya Aviation Workers Union members downed their tools in protest, arguing that the new arrangement would lead to job losses.

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