Nairobi preps bailout for Kenya Airways in 2022 budget

Kenya’s Treasury has agreed to consider an “appropriate recovery plan” for its cash-strapped flag carrier, Kenya Airways (KQ, Nairobi Jomo Kenyatta), in its 2022 budget in light of the airline’s role in supporting the country’s recovery from COVID-19.

This is according to the National Treasury’s Budget Review and Outlook Paper (BROP) 2021, faulted by stakeholders and the public for not outlining a recovery plan for the airline. “Some state-owned agencies and parastatals require a state bailout and cash injection, e.g. Kenya Airways. The 2021 BROP has not outlined any measures to address this problem. An appropriate recovery plan should be considered in the budget review,” they said. They argued the company was one of key state corporations “fuelling economic growth and the creation of employment” and should receive state support.

“This is duly noted and will be done during sector allocations,” the Treasury wrote in response to the feedback. The National Treasury prepares and submits the BROP to the Cabinet for approval by September 30 each financial year in line with the country’s Public Finances Management Act.

Kenya’s Business Daily reported the Treasury recently opened a three-day public hearing which is to inform sectoral budget proposals to be considered in the Appropriation of the Budget Bill for the next financial year. The Bill should be ready for parliamentary approval by March 31, 2022, a month earlier than legally required, because of elections slated for August next year.

Treasury, in the last financial year ended June 30, 2021, departed from its earlier International Monetary Fund (IMF) backed stance which favoured long-term reforms to solve cash flow challenges facing state-controlled firms and parastatals instead of bailouts. This is after it pumped an additional KES10 billion shillings (USD90 million) into Kenya Airways.

The national carrier has made its position clear: “We are in a negative equity position, which means we are insolvent as an organisation, obviously made worse by the pandemic,” Chief Executive Officer Allan Kilavuka said on August 26, 2021.

Kenya has 26 state corporations, many of which have deteriorated financially, weighing heavily on public finances. In July 2021, the Treasury said it would undertake an in-depth financial risk analysis of 18 parastatals – excluding Kenya Airways – which together were expected to have a KES70 billion (USD630 million) annual financial shortfall over the next five years. This would be carried out as part of a 38-months support programme by the IMF.