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REPUBLIC OF KENYA
THE NATIONAL TREASURY
SESSIONAL PAPER NO. 3 OF 2OT7
GOVERNMENT GUARANTEE OF USD 750 MILLION (EQUIVALENT TO KES 75.26
BILLION) lN SUPPORT OF RESTRUCTURING OF KENYA AIRWAYS
1. ln accordance with the provisions of the Public Financial Management Act,
ZAL2, section 53 (1) of the Laws of Kenya, the following information is laid
before the National Assembly for consideration and approval.
Z. The Kenya Airways PLC (formerly Kenya Airways Ltd) is a limited liability
company established under the Companies Act in which the Government owns
29.8% of the issued ordinary shares. lt is, therefore, a Government linked
corporation.
3. Kenya Airways PLC (KQ), the Kenyan National Carrier has grown significantly
over the last 15 years - from a turnover of KShs 25 billion in2OO2 to KShs L00
billion in 2011. ln the same period, profitability improved significantly - at one
point KQ had the second highest operating margin globally.
4. ln ZOLL, on the back of this significant growth, KQ embarked on a fleet
modernization, financing and expansion programme based on a market outlook
largely based on the projected business expansion and growth into Asia. This
saw the fleet growing from 32 aircraft in 2011 to 45 in 2015.
5. Of the total fleet growth, seven (7) aircraft and one (1) aircraft engine (six (6)
Boeing 787-g aircraft, one (1) Boeing 777-3OOER aircraft and one (1) General
Electric GEnx-1/B70/75 spare engine) were primarily financed from loans
obtained from two international banks, namely Citibank N.A. and JP Morgan
Chase Bank N.A., through a special purpose vehicle christened Tsavo Aircraft
Financing LLC, a Delaware limited liability company, as the lessor. The loans
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were guaranteed by the Export-lmport Bank of the United States (US Exim), an
official export credit agency of the Unites States.
6. ln order to finance pre-delivery payments for some of the ordered aircraft,
Kenya Airways obtained short term facilities from eleven (11) local banks, being
Equity Bank, Jamii Bora Bank, Kenya Commercial Bank, Commercial Bank of
Africa, l&M Bank, National Bank of Kenya, Diamond Trust Bank, Co-operative
Bank, NIC Bank, Chase Bank and Eco Bank.
7. ln the post 2Ot2 period, however, the overall market context changed
significantly, marked by downturns in traditional tourism source markets for
Kenya, terrorism related advisories impacting Kenya, increased costs from the
fleet acquired, and unprecedented competitive pressures, the results of which
led to significant losses that have eroded the capital of the company thereby
threatening its survival and occasioning the need to restructure KQ, both
operationa lly a nd fina ncia lly.
B. With full support and indulgence of the Government and other stakeholders,
the Kenya Airways PLC has negotiated a financial restructuring plan whose
primary objectives are (i) to reduce financial leverage, i.e., to reduce the
inordinate level of indebtedness and create capital structure aligned to the
company's asset levels to enable KQ to trade on its own balance sheet going
forward, and (ii) to increase the airline's liquidity to ensure that it can operate
normally like any other corporate going forward. This substantial deleveraging
will be sufficient to attract strategic investors.
9. The financial restructuring is supported by the turnaround plan initiated in
2015. The turnaround is already bearing fruit, as demonstrated by the full year
results for 201,6/f7. The operating margin improved by KShs.5 billion to
KShs.900 million from an operating loss of KShs.4.1 billion.
10. The preferred financial restructuring option entails a Solvent Consensual lnter-
Conditional Restructuring, which creates the incentives to ensure that all the
relevant stakeholders of the company contribute to the restructuring to
achieve a mutually beneficial outcome. lt is inter-conditional on every one of
them agreeing to the restructure. The restructuring framework is expected to
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yield permanent and temporary liquidity of approximately USS 1 billion and
reduce the debt from over USS2 billion to almost USS1.2 billion.
11. To facilitate this transaction, GoK will convert its debt USS243 million plus
accrued interest to equity. GoK will also provide a guarantee amounting to
USS75O million to cover both US Exim and the participating local banks to the
tune of USS525 million and USS225 million, respectively. These guarantees are
a contingent liability required to secure future funding of KQ. They avoid any
cash bailout and consequential request from all stakeholders to receive cash.
GoK will receive additional shares in KQ in consideration for providing the
gua ra ntees.
12. Although the total guarantee is sized at USS750 million, the most likely
downside case in a going-concern scenario is a USS75 million draw down on the
guarantee to the local banks in 1-0 years under the financial structure. This
would arise in the event that the share price of KQ does not fully recover to the
value that a sale of the shares held underthe financial structure does not meet
the debt service obligations of the banks.
13. However, in a liquidation scenario, the downside rises to USS280 million,
mainly on account of exposure under the guarantee to Kenyan banks, as the US
Exim portion is asset backed (comprising the newest fleet in KQ. ln a
liquidation situation, the aircrafts which have value would be sold with only a
minimal residual risk exposure to GoK.
L4. lt is important to note that once Kq is restructured and is back to financial
stability, it will be able to meet its financial obligations, mitigating GoK risk. lt
has been determined, through an independent third party, that there is a
business case for a restructured Kenya Airways. The independent third party
has also supported the restructuring proposal by KQ's transaction advisors.
15. ln addition, Kenya Airways, as a strong home-based carrier, is fully aligned with
the government's ambition for Nairobi as an integrated regional hub, due to its
geographica lly optimal location. Notably,
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a The Government has made significant investment in developing and
upgrading aviation infrastructure (e.g. airports, air navigation, etc.) to
support the vision.
b. The development of the KQ network, creating an efficient gateway to and
from Nairobi, enhances Nairobi's attractiveness as an international centre
of business and investment. Currently, there are in excess of 35
headquarters of international institutions based in the city.
c. The development of the KQ network with its renewed focus on Africa
creates all the gateways to and from Nairobi, making it an efficient aviation
hub supporting the Vision 2030 objective to also make Nairobi a financial,
as well as conference tourism, hub and increase the access to key tourism
destinations.
d. As a national carrier and a recognized African brand, KQ represents the
country, and indeed the continent, in the global aviation industry.
e ln other jurisdictions, airlines are at the centre of country positioning
strategy. lndeed, the integrated regional hub strategy is strongly pursued
by countries such as the Gulf States, Turkey, China and Ethiopia.
16. lt is also worth noting that countries normally intervene and save their airlines
when they are in financial distress. Examples of airlines restructured with
significant sovereign support include Olympic (Greece), Japan Airlines, Air New
Zealand, South African, Malaysian and Pakistan lnternational Airlines.
17. Against this background, it is critical that Government supports the
restructuring efforts of Kenya Airways.
18. The current total contingent liabilities of the Government of Kenya in respect
to the Public Financial Management Act, 2Ot2 section 58 (2) (f) amount to KShs
57.68 billion and with the proposed guarantee of a sum equivalent to KShs
75.26 billion the aggregate amount will be KShs L32.94 billion. This, together
with the stock of outstanding debt, is within the debt limit set by Parliament.
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19. The National Assembly is requested to approve the Kenya Government
Guarantee amounting to USD75O million (equivalent to KShs 75.25 billion), for
the restructuring of Kenya Airways PLC, as follows:-
(i) A Guarantee of USD 525 million to US Exim Bank in order to deliver liquidity
savings to KQ over five (5) years.
(ii) A Guarantee of USD 225 million to local Kenyan banks, primarily to support
working capital requirements.
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K. EGH
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REPUBLIC OF KENYA
THE NATIONAL TREASURY
www.treasury.go.ke The National Treasury
FAX NO. 310833 P.O. Box 30007
Telephone: 2252299 NAIROBI
When replying please quote:
Ref: No. ZZ|MOF 1.68/07 Date: 05June 2OL7
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Mr. Michael Sialai illt t-EctEflvtr
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Clerk of the National AssemblY 0 6 JUN Znu
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NAIROBI
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Dear ft, E
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RE REOUEST FOR THE APPR OVAL OF THE NATIONAL ASSEM Y FOR
GU MOU USD ONT T Y/'
RESTRUCTURING OF KENYA AIRWAYS /
The Cabinet approved the framework for the restructuring of Kenya Airways at
its meeting held on 29 MrY, 2017.
The Cabinet further authorized the Cabinet Secretary/'National Treasury to
obtain approval from the National Assembly, in line with the requirements of
the law, for Guarantees totaling USD 750 million required to support the KQ
restructu ring.
pursuant to the provisions of the PFM Act.58f, please find herewith a Sessional
paper in respect of this request. Please facilitate the laying of this request
before the National Assembly at the earliest opportunity.
Sir^c>-( NATIONAL ASSEMBLY
Yours R,ECEXVEI]
O E JUilI 2017
Dr. Kamau Th ljl;jl\ililri lrtJPr.r'i - {'i l-- t.iK
PRIN !PAL SECRETARY/NATIONAL TR SURY j., l:,{ },'..i, ilr I :i ir\../,.ivi l'} i t }..*i
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Certifted'
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cc Prof Paul Maringa Mwangi
Principal Secretary
Ministry of Transport & lnfrastructure
NAIROBI
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REPUBLIC [f. lOF KENYA --I..Jr 
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"#[,+ ELEVENTH PARLIAMENT _ FIFTH SESSION '-/ t'] ui -)
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N) r,-[ c.t: t;f /.4r,fi . (/Y ' (--.'-' i-)(,)(ri..)
(Leader of the Maiority Party) +
RESTRUCTURING OF KENYA AIRST/AYS ., i,t
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THAT, pursuant to the provisions of Article 21,3 of the Constitution, and
sections 50 and 58 of the Public Finance Manageruent Act (CAP 4/ 2C), this House notes
Sessional Paper No. 3 0f 20/ 7 on Gouernrnent Guarantee in support of Restructuing of Kerya
Airwals, and approves the Government of I(enya Guarantee of United States Dollars
($) 750 million, equivalent to Kshs 75.26 billion at the current exchange rate, to the
US Exim Bank and eleven (11) local banks, for the resuucruring of I(enya Airways
PLC.
THE HON. ADEN DUALE, EGH, MP
LEADER OF THE MAJORITY PARTY
Date: g 2-'o
The motion has a Money Bill effect in accordance with Article 114 of the
Constitution.