Kenya Airways has defaulted on a $841.6 million loan from American Exim Bank for the purchase of aircraft, according to the National Treasury.
According to its most recent Annual Debt Management Report (2021/2022 fiscal year), the loss-making national carrier secured the loan with a national government security but failed to repay it.
The government guaranteed $525 million out of the 841.6 million.
“Kenya Airways defaulted on both the guaranteed portion of the loan amount as well as the non-guaranteed portion,” the National Treasury says.
“The National Government is in the process of novating the debt to be finalised during 2022/2023 fiscal year.”
Novation is the process by which an original contract is extinguished and replaced with another, in which a third party assumes rights and obligations that were previously held by one of the original contract’s parties. This means that the original party transfers both the contract’s benefits and burdens.
The Exim Bank of the USA loan to KQ was intended to be used to purchase seven aircraft and one engine.
“The Covid-19 pandemic containment measures adversely affected the airline business globally including KQ. Government intervention included, among other financial support, the settlement of the guaranteed debt extended to KQ,” National Treasury’s director in charge of debt management, Dr. Haron Sirma said.
KQ chief executive Allan Kilavuka however disputed the Treasury figure.
“The value you quote for the US Exim facility is not correct; $485 million is what relates to the US Exim guaranteed debt. I don’t have the context… maybe they have included other guarantees, not just the US Exim facility,” he said.
