Kenya Airways faces a Sh220 billion debt burden, with a confidential 2017 Cabinet document revealing the airline's urgent need for government intervention to remain competitive against foreign carriers operating in Nairobi.
The Project Simba Memorandum, dated February 20, outlines dire financial conditions including zero cash flow buffer and revenue insufficient to generate positive cash flow. The report warns that without immediate action, Kenya Airways could face technical insolvency by 2022.
A proposed Cabinet paper led to the decision allowing Kenya Airways to manage Jomo Kenyatta International Airport (JKIA), sparking opposition from the Kenya Airports Authority (KAA) and aviation workers' union. The plan includes government oversight of Kenya Airways' potential nationalization as a strategic asset.
The document highlights risks of airline insolvency triggering $750 million in government guarantees and aircraft repossession. It recommends buying out foreign partner KLM, converting bank debts to equity, and delisting the airline to protect its status as a national asset.
Kenya Airways' CEO, Sebastian Mikosz, acknowledges past missteps but emphasizes the need to adapt to increased competition. He warns that without restructuring, the airline risks being outcompeted by state-supported carriers like Ethiopian Airlines and Emirates.
The proposed Kenya Aviation Holding Company faces resistance from unions concerned about job losses. The plan would grant Kenya Airways monopoly over airport services while KAA retains control of non-aviation assets.
Despite its historical profitability, Kenya Airways now operates at a loss, spending Sh77.6 per seat-kilometer versus earning Sh75.8. The airline also faces challenges accessing fuel-hedging contracts and has Sh2.5 billion in blocked funds abroad.
The document notes that foreign carriers benefit from tax breaks and government support, while Kenya Airways operates without airport revenue advantages. Ethiopian Airlines' expansion through international partnerships further threatens Kenya Airways' market position.
