Investors interested in Kenya Airways are being thrown off by its Sh187.74 billion($1.3 billion) debt

Kenya Airways faces investor concerns over heavy debt burden impacts equity interest sales.
KQ management seeks a financial advisor to facilitate investor selection and aims to reduce debt.
Struggling Kenya Airways' debt woes pose challenges for potential strategic investors.

The hefty debt burden of Kenya's national carrier, Kenya Airways has caused concern among potential investors for the projected equity interest sale, making it the largest challenge for the airline in its quest to lure in purchasers.

KQ managers who have made multiple scouting trips to evaluate the appeal of the company's stock offer in the US, China, and the Middle East informed Parliament that they had some leads but no firm commitments as of yet.

“All the potential investors we spoke to agreed that the fundamentals of the company are very strong. Their concern was on the debt level and that’s why a good strategy would be reducing the company’s debt to get extra funding into the company,” KQ CEO Allan Kilavuka said.

The airline's management also announced that it was seeking a financial advisor to assist in creating an investor letter that would serve as a guide for choosing the preferred investor or investors. The government's exposure to risk and expense should decrease with the admission of a strategic investor.

The decision on a financial advisor will be made via KQ's internal procurement procedures, and it is anticipated to be finalized in December.

To help the struggling airline return to profitability, President William Ruto of Kenya led a team to Washington in December with a push to sell a majority interest in KQ. The government's quest to find a strategic investor in KQ coincides with the Exchequer pausing its bailouts of the airline in the fiscal year beginning July 1.

KQ owes creditors Sh187.74 billion ($1.347 billion) as of the end of May, including the Sh61.4 billion ($439.8 million) Tsavo facility connected to the carrier's purchase of six Boeing 787-8 aircraft, one Boeing 777-300 ER aircraft, and one Genx engine in 2012.

KQ failed to make payments on the facility, which led to the government taking on the guaranteed debt. At the end of March 2023, the Exchequer had cleared Sh10.1 billion.

The Exchequer has furthermore guaranteed KQ borrowing from nine local banks totaling Sh31.4 billion ($225 million), which was obtained in November 2017 at the conclusion of the company's most recent reorganization and is being used to finance operating capital.

In addition to the guaranteed facilities, KQ also owes Sh22.9 billion to crucial suppliers, including as airport authorities, handling firms, and airplane fuelers, whose failure to pay would severely impair the airline's ability to operate.

In addition, KQ owes syndicates Sh13.7 billion ($98 million) for the acquisition of 10 Embraer e-jets. This debt is known as the Samburu facility, and if it is not repaid, the carrier's fleet would be grounded.