Kenya Airway is shopping for a financial advisor to guide its post-Covid recovery plan dubbed Kifaru
The restructuring has a December 31 deadline, but chairman Michael Joseph declined to give any details.
"I'm sorry I do not have any details at this stage,'' he said.
The airline's submissions to the National Treasury's Public Debt Committee on June 9 seen by the Star spells out the likely implications unless the debt is settled on time.
"Kenya Airways has $1.34 billion (Sh184 billion) worth of obligations to creditors, all with significant risk to the taxpayer given the sovereign guarantee component,'' the airline says.
The planned restructuring comes a month after the National Treasury announced it will not finance the national carrier in the financial year starting July 1.
“We have cut funding for KQ, which received a substantial bailout in the last and the current budgets,” National Treasury PS Chris Kiptoo told the National Assembly’s Finance and Planning committee on May 16.
He revealed that a critical plank of this strategy will be a financing plan that does not depend on operational support from the exchequer beyond December 2023.
The plan, if implemented, could save taxpayers billions of shillings spent annually to keep afloat the national carrier that last returned a profit in 2012.
President William Ruto had earlier indicated that the State was seeking a strategic investor to buy a controlling stake in KQ to wean it off debts and subsidies and steer its growth.
The airline has listed several pending debts, including $439.8 million owed to Tsavo, a special purpose vehicle incorporated in the State of Delaware, USA.
KQ says that failure to pay will see a recall of a sovereign guarantee for the balance of $403 million as of May. This, in addition to the risk of grounding the aircraft, default notices by lenders, and accrual of default penalties.
The airline borrowed a total of $924 million in 2012 to procure six 787-8 aircraft, one 777-300ER aircraft and one Genx engine.
Approximately 90 per cent of the $841.6 million was provided by Citibank NA and JP Morgan Chase Bank NA and was fully guaranteed by US Exim Bank.
The 10 per cent balance of $82.6 million was funded by Africa Import Export (Afrexim) Bank.
The national carrier is also expected to settle $97.7 million owed to Samburu, another SPV incorporated in the Cayman Islands. It runs the risk of calling up of letter of credit worth $32.5 million if it fails to clear the loan on time.
Other repercussions include the risk of grounding the aircraft, default notices by lenders, and accrual of default penalties.
The airline borrowed $310 million for the acquisition of ten Embraer E-jets.
This was a syndicated loan led by Standard Chartered Bank and includes China Development Bank, Nedbank, Afrexim Bank and Trade Development Bank (formerly PTA Bank).
The aircraft leasing plan was part of the project Mawingu conceived in 2009 aimed at seeing the airline increase its footprint by growing destinations from 53 to 115 touching 77 countries by 2021.
It is also expected to pay local banks that bought a stake in the 2015 restructuring close to $225 million, failure to which they will call up a sovereign guaranteed loan of a similar amount.
Others are $420.5 million and $165.2 million owed to the Kenyan government and suppliers respectively.
Unlike other past restructuring plans, Project Kifaru focuses on an optimised fleet and network plan. A short and long-term fleet strategy has been developed aimed at achieving the right number of aircraft.
This has seen the exit of 2 B737-700 and two Kenya Airways E190 jets from the fleet. The business has also decided to optimise the current and future fleet types for ease of operation maintenance and training.
Under this project, KQ has planned aircraft cost reduction. In previous restructuring exercises, this was not an area that was explored.
From 2021, KQ management has achieved an 18 per cent aircraft reduction in rental obligations, approximately $2 million per month, and a reduction of $21 million in the outstanding lease deferrals.
Negotiations are ongoing to terminate the head leases for the two sub-leases 77-300ER aircrafts.
There is also a deliberate cost reduction programme targeting $20 million by 2024. As of April, 141 initiatives had been identified and valued at $136 million (Sh18.9 billion).
The business is also pursuing revenue diversification. The target was $6.6 million as of April this year.
The airline has also embarked on Collective Bargaining Agreement (CBA) negotiations. Notice for CBA negotiations has been issued with a target savings of $8.5 million ( billion) per annum.
This will not be the first time KQ is restructuring. In 2017, it undertook a financial restructuring, with the State and a consortium of local banks – KQ Lenders Company – converting their loans into shareholding.
This resulted in the Treasury increasing its stake to 48.9 per cent from 29.8 per cent.
KQ Lenders Company emerged as the second-largest shareholder with a stake of 38.1 per cent.
The restructuring diluted the shareholding of KLM, KQ’s longtime partner, to 7.8 per cent from 26.7 per cent while retail shareholders ended with a 1.78 per cent stake from 24 per cent.