Nairobi High Court rules on Kenya Airways state loans

Government loans extended to Kenya Airways (KQ, Nairobi Jomo Kenyatta) do not automatically convert the airline into a public entity, according to the High Court of Kenya.

Based on this conclusion, the High Court recently dismissed a petition by Senator Okiya Omtatah that sought to prohibit Kenya Airways from sending its pilots to flight schools in South Africa, reported The Star newspaper. Omtatah had sought an order compelling Kenya Airways, as a recipient of public funds, to procure its pilot training services and other goods and services in Kenya. The petitioner claimed Kenya Airways discriminated against local pilot training schools and pilots trained by local institutions licensed by the Kenya Civil Aviation Authority (KCAA).

According to a statement issued by ALN Kenya, the lawyers for Kenya Airways, the petitioners sought to have Kenya Airways designated a public entity, which would subject it to the Public Finance Management Act (PFMA), the Public Procurement and Asset Disposal Act (PPADA), and the State Corporations Act (SCA). The legal argument was centred on shareholder loans extended to the airline by the Kenyan government, which owns 48.7% of the carrier.

In dismissing the petition, the High Court found that Kenya Airways was not a public entity because the government neither holds a controlling interest in it nor is the airline established under the State Corporations Act, ALN explained. Therefore, the court found government loans to the airline did not amount to public money. As such, Kenya Airways procurements were not subject to the PFMA or PPADA. By implication, the government could not interfere with management and board decisions at Kenya Airways, ALN said.

The government approved a state loan of KES20 billion shillings (USD173.9 million) in May 2022 for operating cash and partially pay for its restructuring. In addition, the airline borrowed KES11.3 billion (about USD95 million) in the half-year ending June 30, 2022. This followed loans of KES11 billion (USD95.2 million) in 2020 and KES14 billion (USD121.1 million) in 2021.