China Development Bank contributes to $109 million syndicated loan to Kenya Airways for lease of aircraft

Project narrative

In September 2013, China Development Bank (CDB) and African Export Import Bank (Afrexim) participated a $109 million syndicated loan agreement with Kenya Airways (KQ) for lease of 9 Boeing 787 Dreamliner aircraft. This transaction was part of a broad fleet expansion effort by Kenya Airways called 'Project Mawingu,' in which Kenya Airways acquired 3 borrowing facilities to finance the purchase of 10 Embraer aircrafts and pay for the pre-delivery deposits for Embraers and 9 Boeing 787 Dreamliner aircraft. These credit facilities were part of a larger $2 billion syndicated aircraft purchase facility that Kenya Airways contracted with African Export Import Bank (Afrexim) serving as the lead arranger of the lending syndicate. According to KQ's 2017 Annual Report and a 2015 Kenyan Senate Committee report, the loan carried an average interest rate of 5.39% during the period 2012-2025. The Committee also noted that, given the current revenue base of KQ, its debt levels were unsustainable. The syndicated loan was used to lease 20 aircraft, including 10 Embraer E190 aircraft, and 10 Boeing aircraft (9 Boeing 787-800 and 1 Boeing 777-300ER). The fourth Boeing 787-800 passenger plane arrived in Kenya on September 10, 2014, and two other Boeing 787-800 passenger planes, which are involved in the provision of advance payment and financial leasing by CDB, will be delivered in October 2014. According to the East African, the 20 planes constitute half of KQ's total fleet as of 2019. Then, in January 2022, the World Bank and IMF published a Debt Sustainability Analysis (DSA) for Kenya, which noted that '[a]s part of the restructuring of Kenya Airways (KQ), the Government of Kenya expects to take over the responsibility for full repayment of up to USD 827.4 million of loans to KQ.' Then, in December 2022, an updated World Bank-IMF DSA noted that '[a]s part of the restructuring of Kenya Airways (KQ), the Government of Kenya has begun servicing the guaranteed portion of KQ external debts, which the company can no longer service, while discussions on novation of a part of this guaranteed stock is ongoing. The sum of the principal of these obligations and the remaining government guarantee on other KQ external loans (US$688 million as of November 2022) is lower than the US$750 million government guarantee of KQ debts included in the stock of external PPG debt at end-2021. As a result, the operation will lower the nominal stock of external PPG debt, but raise its present value, due to the assumption of the associated interest payments by the government and shorter repayment period than previously assumed.'