Kenya Airways to spend Sh45b bailout on grounded jet repairs

Kenya Airways has revealed that the Sh45.15 billion bailout approved by Cabinet last week will be spent on old aircraft repairs and maintenance, not on acquiring a new fleet.

The turnaround plan has triggered immediate alarm among senior managers, former executives, and aviation experts who warn it risks repeating the failures of state-bailed-out airlines that collapsed.

Last week, President William Ruto’s Cabinet agreed to provide a shareholder loan of Sh45.15 billion to enable the troubled airline to meet "immediate and non-deferrable operational obligations" and support continuity of operations as it implements its broader long-term turnaround plan.

In a statement signed by acting Group Managing Director and CEO Habil Waswani, the facility is explicitly earmarked to support the company's "critical operational requirements, including aircraft maintenance, the return to service of grounded aircraft and other immediate critical operational obligations."

The proposed terms include a 10-year tenor and may, subject to shareholder and regulatory approvals, be convertible into equity at the option of the Government of Kenya as part of a future capital restructuring, or repaid earlier on terms to be agreed between the company and the government, KQ, as the airline is popularly known as said.

The Cabinet also approved the in-principle conversion of existing government shareholder loans of approximately Sh122 billion, together with accrued interest, into an "equity-qualifying tradeable instrument."

This conversion is intended to restore Kenya Airways from its current negative equity position to a positive equity position, strengthen its balance sheet and creditworthiness, and support the company's planned long-term capital raise initiatives to be undertaken through the market by way of an Investment Memorandum.

KQ said the conversion would also facilitate the full capital raise process and the onboarding of suitable strategic partners and investors.

The airline said the implementation of both measures remains subject to negotiation and execution of definitive transaction documents, approval by shareholders where required, receipt of approvals from the Capital Markets Authority and the Nairobi Securities Exchange, and all other applicable statutory, regulatory and third-party consents.

The airline has issued a cautionary notice advising shareholders and investors to exercise caution when dealing in its securities until the outstanding terms are determined and formally announced.

Waswani framed the measures as part of a broader turnaround strategy.

"The Board of Directors of Kenya Airways PLC wishes to notify shareholders, the Capital Markets Authority, the Nairobi Securities Exchange PLC and the investing public that the Government of Kenya has granted approval for two related measures intended to support the Company's planned turnaround by addressing its immediate recapitalisation, liquidity and balance sheet restructuring requirements," Waswani said.

On the specific use of the Sh45.15 billion loan, Waswani explained: "The facility is earmarked to support the Company's critical operational requirements, including aircraft maintenance, the return to service of grounded aircraft and other immediate critical operational obligations."

His statement did not address concerns about the lack of funding for fleet modernisation or network expansion, nor did it address questions about how the airline would compete with regional rivals acquiring new aircraft.

Deepak Dave, a risk adviser with Advisory Capital, poked holes in the Waswani plan in an interview with The Standard.

"Sadly, this is a paper shuffling exercise that does little to improve the Airline's operational leverage or business strategy," Dave said. "The GoK (Government of Kenya) continues to show appropriate commitment, though it has little choice, and perhaps that will help unlock some financial flexibility, but the core issues are not going to be addressed this way."

His comments appeared to echo the growing concern that the KQ priorities, from the much-needed bailout, do not constitute a growth strategy.

Senior managers and former executives who spoke to The Standard on condition of anonymity said the spending plan does nothing to lower seat-mile costs, adjust route pricing models, or acquire newer, fuel-efficient long-haul jets to compete with regional rivals.

"The spending plan is totally uninspiring because it does nothing to lower seat-mile costs, adjust route pricing models, or acquire newer, fuel-efficient long-haul jets to take the fight to Ethiopian Airlines," said one airline insider who requested anonymity.

Critics pointed out that the Sh45.15 billion loan is effectively a high-priced repair job, restoring the status quo rather than building an airline for the future.

The Sh122 billion debt-to-equity conversion, while essential for balance-sheet health, provides zero liquid cash to fund network expansion or fleet modernisation, a senior manager said.

Managers are drawing uncomfortable parallels with other state-owned carriers that received massive bailouts but ultimately collapsed or were forced into drastic downsizing because the funding prioritised maintenance and balance-sheet repair over commercial growth.

South African Airways absorbed over Sh1 trillion in bailouts over more than two decades, primarily to cover operational losses and restructure debt.

The airline continuously bled market share to fast-scaling African rivals and was eventually forced into business rescue, downsizing its fleet dramatically.

Alitalia received more than Sh1.4 trillion in state support across successive emergency loans and equity restructurings before being permanently liquidated in 2021.

The Italian carrier's capital was repeatedly consumed by high operating costs from an ageing fleet, while it lost market share to low-cost competitors.

Air India spent decades trapped in a state-funded survival cycle before its eventual privatisation.

The Indian government pumped over Sh580 billion into the carrier under a state-mandated turnaround plan, with the vast majority earmarked to pay off legacy aircraft loans and fund heavy maintenance for grounded planes.

Because the capital injections offered zero budget for aggressive network expansion, Air India continuously lost market share to agile private competitors like IndiGo.

Taxpayers essentially funded a holding pattern until the state was forced to sell the debt-laden carrier to the Tata Group.

Malaysia Airlines received Sh170 billion in government support under a radical restructuring. Despite the bailout, the airline recorded massive financial losses for consecutive years because the plan did not solve its core commercial vulnerabilities.

The plan's shortcomings are thrown into sharp relief by the contrasting strategies of regional competitors, analysts say.

Ethiopian Airlines continues to expand aggressively, acquiring new Airbus A350-1000 and Boeing 787-9 aircraft as part of its "Vision 2035" growth strategy.

Kenya Airways, by contrast, is spending capital to return grounded planes to service. As of June 2026, its liabilities stood at approximately Sh328.2 billion against assets of Sh180.3 billion, leaving negative equity of Sh147.9 billion. The airline reported a Sh16.1 billion after-tax loss for the first half of 2026, up from Sh12.2 billion the prior year.

"The Cabinet did well. The management plan does not inspire confidence," said a former chief executive who spoke on condition of anonymity. "There is a difference between survival and revival. This plan is survival."

The Standard could not immediately reach Kenya Airways for additional context and comment by press time. The cautionary notice remains in force, advising investors to exercise caution when dealing in the company's securities until outstanding terms are determined and announced.

bngugi@standardmedia.co.ke