| NAIROBI, June 8
NAIROBI, June 8 Kenya will convert its $243
million in loans to Kenya Airways into equity, the
government has said, as part of a broader restructuring to nurse
the ailing airline back to financial health.
The government owns a 29.8 percent stake while Air France
KLM has a 26.73 percent stake in the airline, which
slumped into the red five years ago following a downturn in
tourism after a spate of attacks by Islamist militants.
The airline has failed to record a pretax profit since then
and the losses have compounded the huge debts the airline took
on to buy a fleet of new Boeing planes, pushing it into negative
The government has previously said it planned to convert its
loans into equity but did not give an amount. The figure of $243
million was contained in a government paper submitted to
parliament on Wednesday seeking approval for the overall deal.
Kenya Airways warned in a statement on Thursday there was a
risk of "significant" dilution of existing shareholders as it
offers new equity in the restructuring exercise.
The airline has said the financial restructuring will help
dig it out of its negative equity position and get a better
balance between cash flow and debt repayments.
The restructuring is expected to reduce the airline's debt
to about $1.2 billion from above $2 billion, the government said
in its submission to parliament.
Parliament's term ends next week ahead of an August election
the deal will need to be approved quickly.
The government is also seeking to guarantee $750 million
worth of the company's current debt with international and local
lenders as part of the restructuring.
Some local creditors will convert some of their debt into
equity too, a source at the airline said, without providing a
figure of the amount.
The restructuring is conditional on all creditors and
shareholders agreeing to it, the government said in the document
submitted to parliament.
"There is a business case for a restructured Kenya Airways,"
the government said, citing a study by an unidentified third
party contracted to look into the issue.
Kenya has spent billions of shillings upgrading the
country's main airports and views the airline as a strategic
asset, supporting other industries such as tourism and
encouraging investment from abroad.
Kenya Airways flies 12,000 passengers a day on its fleet of
Boeing and Embraer planes. It cut its pretax loss in the year to
the end of March and reported a modest operating profit as it
carried a record number of passengers despite a smaller fleet.
(Editing by David Clarke)