National carrier Kenya Airways (KQ) has defaulted on a Sh. 101 billion (USD 841.6 million) loan from the American Exim Bank.
The loan was secured with the National Treasury providing security for the purpose of acquiring seven new aircraft and a new aircraft engine.
“Kenya Airways defaulted on both the guaranteed portion of the loan amount as well as the non-guaranteed portion,” said the National Treasury.
“The National Government is in the process of novating the debt to be finalized during 2022/2023 fiscal year.”
Novation is the process by which the original contract is extinguished and replaced with another, under which a third party takes up rights and obligations duplicating those of one of the parties to the original contract.
This means that the original party transfers both the benefits and burdens under the contract. The benefits could be in the form of money or the benefit of a service, while burdens are what the party is obliged to do in order to receive the benefits, for example, payment for a service or goods, or the performance of a service.
However, the leadership at Kenya Airways has disputed the Sh. 101 billion figure and said that KQ has only defaulted on USD 485 million (Sh. 58.7 billion).
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“The value you quote for the US Exim facility is not correct; $485 million is what relates to the US Exim guaranteed debt. I don’t have the context… maybe they have included other guarantees, not just the US Exim facility,” said KQ chief executive officer Allan Kilavuka.
“The airline is yet to get back to full operations and has requested GOK (Government of Kenya) to support on the guaranteed loan to avert the possibility of the loan going into default.”
Kenya Airways is 48.9 per cent owned by the government and a group of 10 local banks which own 38.1 per cent of the shares. Other shareholders include KLM Royal Dutch Airline (7.8 percent), employees (2.4 percent) and other shareholders at 2.8 per cent.
