Kenya Airways (KQ, Nairobi Jomo Kenyatta) is in talks with its lenders to extend moratoria on the repayment of its loans as the airline expects its revenue to remain subdued this year amid low travel demand due to COVID-19.

This is according to the airline’s hHead of treasury and corporate finance, Geoffrey Langat,who told The Standard newspaper that finance costs were one of the carrier’s largest fixed costs which it had been unable to cover after its revenues declined drastically from March 2020 as its passenger operations were grounded for four months (April to August 2020) with the onset of the pandemic.

Full-year financial results for the financial year ending December 31, 2020, had shown that fixed costs only declined by 3.1%, while revenue had dropped by 59% to KES52.8 billion (USD494 million). The airline needed KES55 billion (USD515 million) to survive over the coming year.

Langat said the carrier had a mix of loans from various lenders including local and international banks. It had also received shareholder loans from the government, which had been the only entity to have advanced new loans last year, totalling KES11 billion (USD103 million). The government had also guaranteed loans totalling USD750 million (mostly from international lenders) until 2017.

He said the airline had been able to save more than KES6.5 billion (USD60.8 million) last year after it had been granted an initial six-month moratorium on the repayment of bank loans to October 2020, which was extended by another nine months to June 2021. Most of its lenders had only agreed to a moratorium on the principal loan amount, meaning the airline had to continue paying interest.

Technical Director Evans Kihara said the flag carrier had managed to save KES1.4 billion (USD13.1 million) after reviewing all its contracts with suppliers and insourcing some functions such as servicing aircraft. “The objective was to retain only critical value-adding service contracts and to re-engineer those that are still needed to more cost-effective models that ensure payments are done only when repair events occur at lower negotiated costs,” he said.

He said Kenya Airways had increased its capacity to service its own aircraft, including heavy maintenance services for its B787-8s, as COVID-19 travel restrictions imposed by states had made it difficult to ferry them abroad for maintenance. This had resulted in huge savings in outsourcing costs, he added.