KQ defaults on Sh8.5bn interest as State debt rises

The non-payment of interest has contributed to the airline’s debt owed to the government growing to Sh131.4 billion in the year ended December 2025, up from Sh108.3 billion the year before.

“As at 31 December 2025, the … group had not made payments of interest on the government of Kenya loan as set out in the loan agreements,” KQ, as the airline is known by its international code, disclosed in its latest annual report.

“Accrued interest for the Government of Kenya facility amounts to Sh8.5 billion.”

The Nairobi Securities Exchange-listed firm added that it sought and was granted waiver and deferral on the unpaid interest.

The Treasury charges KQ three percent per annum interest for the shareholder loan compared to 18.5 percent charged by commercial banks on their credit to the airline.

Payment of the interest would have pushed KQ’s finance costs of Sh12.39 billion to Sh20.8 billion while dragging it deeper into losses.

The company reported a net loss of Sh17.1 billion for the year ended December 2025, reversing a net profit of Sh5.4 billion the year before, as revenues plunged.

This is the fourth year in a row the government is waiving interest due from the airline, which has not paid a dividend for over a decade.
KQ’s loss-making and massive debt burden has seen it dip to a negative equity of Sh132 billion, with accumulated losses being Sh206.8 billion.

Negative equity is where a company’s liabilities exceed its assets, translating into financial distress since in the event of liquidation shareholders would receive nothing.

In the case of KQ, Kenyan taxpayers are its largest owners with a 48.9 percent stake and also its biggest lenders at Sh131.48 billion, carrying the largest exposure as the government injects more in the company with hopes of getting a strategic investor.

Besides waiving interest, the government did not collect a Sh25 billion loan that matured last year and instead gave KQ an extra 10 years to repay the debt in the latest restructuring of the airline’s obligations.

This means the government’s total bailout package for the airline last year exceeded Sh52 billion, having also been forced to pay Sh19.7 billion that KQ owed to eight commercial banks.

The government, having offered guarantees to the banks, was forced to step up and pay the loan, with the company unable to pay the amount when it was called up.

The government has further pledged to help KQ meet any other financial obligations that may weigh on it during this year, signalling more burden to be borne by the public to keep the national flag in the skies.

“The Government of Kenya has committed, through a letter of support, to continue providing the required financial support to the group to enable it to implement its recovery programme and meet its financial obligations as and when they fall due, for at least the next 12 months from the date of approval of the annual financial statements for the year ended 31 December 2025,” KQ said.

The airline’s loans that were due last year and which the company was unable to repay included two facilities dubbed Tsavo and Samburu, totalling Sh13.5 billion, from the African Export and Import Bank.

This saw the loans, obtained in 2012, reclassified to short-term credit facilities to signal that they can be called up any time.

“The group did not obtain waivers from the financiers. Consequently, the loan balances for Samburu and Tsavo Junior facilities have been classified as current liabilities,” said KQ.

The government is now the only financier providing funding to the airline on a long-term duration, with the bulk of the amounts maturing in 2045.

The government plans to bring in a strategic investor into the company to inject Sh258 billion in new capital.

The finer details of the proposed deal and the concessions to be offered to such an investor are yet to be disclosed. KQ’s management has said that the national carrier is considering tapping into a consortium of investors, as opposed to angling for a single strategic investor, to strengthen the company’s balance sheet.

A previous proposal to convert the government debt to shares is not likely as it would see it become a majority shareholder, a move that would make the airline a government majority-owned institution which would breach agreements with other shareholders.

KQ slid into insolvency in 2018 after an expansion drive left it with billions of shillings in debt.

In 2017, the government and top banks, including KCB Bank Kenya, Equity Bank Kenya, I&M Bank and Ecobank, converted part of the billions owed to them into equity as part of the airline’s turnaround strategy.

Despite the deficit in shareholders’ funds, the airline continues to trade at a premium on the stock market.

Its share price closed at Sh5.94 on Tuesday, giving it a market capitalisation of Sh34.5 billion.

The share price is up more than 30 percent over the past 12 months, partly rallying on news of the government’s hunt for a strategic investor in the airline.