Air transport regulator has put restrictions on government bailouts of Kenya Airways (KQ) and other local carriers, in a push to comply with global competition and aviation rules.
New regulations published by the Kenya Civil Aviation Authority (KCAA) have placed stringent conditions on the State before it can offer bailouts or debt guarantees to local carriers such as KQ.
In a shift from the past, bailouts to any airline will now only be allowed if they support recovery from a natural disaster, promote an important national project, or correct a serious disturbance in the economy.
The rule brings Kenya into compliance with global standards that restrict direct State aid to carriers, as such support disadvantages airlines that miss out on taxpayer backing and breaches the principles of free and fair competition.
Kenya Airways has received over Sh105 billion from the State in the form of both direct support and shareholder loans since 2020, at the onset of the Covid-19 pandemic, in a bid to keep the national carrier afloat.
Aid limits
The new rules restrict any aid funded by taxpayers that would give an airline an unfair advantage over others in the market, thereby distorting competition, unless such support is economically or socially justifiable.
“Any aid granted by the State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings engaged in the provision of air service shall, in so far as it affects trade between undertakings in air services, be incompatible with fair competition,” says the new regulations, which were published on April 8.
The rules also allow aid meant to support specific airline customers, provided similar customers across different airlines receive the same treatment. Support to encourage flights to underdeveloped areas or to promote conservation of cultural heritage will also be permitted.
Experts contend that if fully enforced, the rules – intended to align Kenya’s aviation framework with international standards – could limit the national carrier’s ability to secure future State bailouts.
“The regulation is excellent in theory because it creates a level playing field for the private sector to compete with State entities, but the challenge with most such laws around the world is the ability and willingness of the State to enforce it,” said Sean Mendis, an international aviation commentator and a former airline chief.
Bailout history
Over the past decade, the Kenyan government has repeatedly stepped in to support Kenya Airways through a mix of debt restructuring, direct budgetary support, loans and guarantees, effectively keeping the airline afloat amid persistent losses and cash flow constraints.
A major turning point came in 2017, when the State led a Sh207.5 billion ($2 billion) financial restructuring that saw the government and local banks convert large portions of the airline’s debt into equity, significantly diluting existing shareholders and increasing State control.
The government also issued guarantees of up to $750 million (Sh77.8 billion) to back the airline’s obligations, easing repayment pressure and stabilising its balance sheet. This intervention followed years of heavy losses linked to an aggressive expansion strategy and high financing costs, which had pushed the airline into negative equity.
Subsequent support has largely taken the form of direct fiscal injections and shareholder loans, particularly during and after the Covid-19 pandemic.
Between 2020 and 2023, the government extended more than Sh41 billion in shareholder loans, alongside additional allocations such as Sh36.6 billion in 2022/23 and Sh26.6 billion in 2021/22, bringing total State support to over Sh105 billion.
These funds were primarily aimed at keeping the airline operational, covering restructuring costs and cushioning it from the collapse in global travel. In some cases, the State also took over debt servicing obligations, including guaranteed facilities owed to external financiers.
Global rules
In the European Union, similar State aid rules have subjected airline bailouts to intense legal scrutiny. In 2024, the EU General Court annulled the European Commission’s approval of €3.4 billion (Sh480 billion) in aid granted by the Dutch government to Air France-KLM, requiring the Commission to reassess the support.
Approval of a €6 billion (Sh840 billion) German bailout for Lufthansa was also annulled, highlighting the strict enforcement of competition principles.
In Kenya, the rules are likely to have significant implications as regional integration within the East African Community deepens, intensifying competition between national airlines and private carriers.
