The Kenyan government has paid Kenya Airways’ loan arrears for purchasing seven aircraft and one engine to US lender Private Export Funding Corporation (PEFCO), with the balance of the loan to be novated to the government.

This is according to the Kenyan National Treasury’s Annual National Debt Report of 2021/22, but the actual amount repaid was not mentioned.

It disclosed that during FY2021/22, the lender had called in a 10-year USD525 million guarantee issued in 2017 by EXIM Bank (United States of America), which in turn had been guaranteed by the Kenyan government. Even though the guarantee only matures in FY2027/28, the lender had called it in because Kenyan Airways had defaulted on loan repayments after experiencing cash flow problems exacerbated by travel restrictions imposed during the Covid-19 pandemic.

“Kenya Airways had borrowed a total of USD841.6 million from EXIM Bank of USA to purchase seven aircraft and one engine. Out of this amount, the government had guaranteed USD525 million. Kenya Airways defaulted on both the guaranteed portion of the loan amount and the non-guaranteed portion.

“Following the default, Kenya Airways sought the government’s intervention, and the Cabinet gave approval for the government to pay the loan arrears on behalf of Kenya Airways and the loan balance to be novated to the government. The arrears have been paid, and the novation process is ongoing and is expected to be finalised in FY2022/23. The loan repayments done on behalf of Kenya Airways shall be recovered through a subsidiary loan agreement between the government and the airline as per the requirements of the Public Finance Management (PFM) Act, 2012,” the Treasury states.

Kenya Airways owed a balance of KES77.824 billion shillings (USD 637.3million) to EXIM Bank and various other banks on June 30, 2022, according to the report.