State To Repay $525 Million Kenya Airways US Exim Loan Amid Default

The State of Kenya will be required to pay $525 million to the US Exim Bank after the African country’s national air carrier Kenya Airways defaulted on a loan. The loan of $841.6 million taken out by the airline in 2017 was meant to be used to purchase seven aircraft and one engine. The Kenyan government backed the loan from the US Exim Bank, which guaranteed to pay $525 million if the airline defaulted on the loan.

Defaulted loan

The Kenyan air carrier took out a loan for nearly $1 billion to help it further expand its fleet. The airline intended to increase its capacity with these new aircraft allowing it to generate more revenue and eventually turn a higher profit. After the loan was granted, the airline began making its scheduled payments on the loan. In 2020 when the COVID-19 pandemic began, the airline saw a severe decline in air travel. The decline in ticket sales resulted in substantial losses.

Photo: Getty Images

Amid the difficult financial period of the pandemic, the airline was no longer able to make the necessary payments on the loan. Having ceased payments roughly two years ago, the airline has defaulted on the loan triggering the guaranteed monetary sum clause. This clause binds the Kenyan government to repay the majority of this loan if the airline cannot make the minimum payments.

A spokesperson for the US National Treasury stated in a release that the airline had defaulted on the loan and that the treasury is looking to reacquire the due funds by the end of 2023. The spokesperson said,

“Kenya Airways defaulted on both the guaranteed portion of the loan amount as well as the non-guaranteed portion,”The National Government is in the process of novating the debt to be finalized during the 2022/2023 fiscal year.”

Disputed numbers

Kenya Airlines released a statement disputing the quote from the US Treasury regarding the guaranteed payments. In the report, the airline attributed its inability to make payments on the loan to the COVID-19 pandemic travel restrictions. It blamed the loan defaulting solely on external factors beyond its control. Later in the statement, the Airline’s CEO, Allan Kilavuka, claimed the monetary figure posted by the US treasury to be inaccurate. Kilavuka stated,

“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.”

Photo: Getty Images

The airline currently predicts that it will reach profitability status by 2024 following major internal restructuring efforts. The unpaid debt is one of many financial struggles the airline has seen this year. The airline, along with many others, has had to manage operations with a significant portion of revenue from foreign operations tied up in foreign banks. The most notable of these instances was when the airline had millions of dollars being withheld in Nigeria. The Nigerian government has since released the majority of the funds that it owed to foreign airlines.

What do you think of this massive debt? Let us know in the comments below.

Source: Business Insider, American Journal of Transportation