[Photo/courtesy]This is how I read the Kenya Airways bailout plan. Strictly speaking, it is designed in a way that will not involve any injection of cash from the Exchequer at this stage.

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Instead of pouring in taxpayers cash into the deal, the government is just giving a $750 million (Sh77 billion) guarantee to international lenders and lessors so as to commit them into agreeing to giving Kenya Airways KQ softer and longer repayment terms - and most significantly, to commit KLM to agree to pump in new equity into the company. Apparently, KLM is putting $100 million (Sh10 billion) on the table.

This is not to say that the government is not incurring liability. Indeed, the transaction has introduced a huge contingent liability in the government’s books.

The saving grace is that since the facilities are either secured or asset-backed by aircraft, the guarantees the government has given are not likely to be recalled.

In the context of dwindling revenue collections by the Kenya Revenue Authority and huge spending priorities, I can’t see how the government was going to manage to bail out KQ.

The guarantees route was clearly the more expedient route to take for the Jubilee administration. Does the bailout plan make economic sense? The wholly state-owned South African Airways has had to go to their national treasury for financing.

Subsequently, the South African government gave the airline a permanent guarantee, basically a carte blanche allowing it to source credit any time it was under pressure.

In Malaysia, the government injected $1.5 billion to save the national airline. while in Portugal, the national carrier’s $1.2 billion was restructured. $400 million was raised in capital and another $4.5 million raised in liquidity through aircraft sales and leasebacks.

Restructuring KQ’s debts will not be enough. The government needs to take a long-term view on supporting the national carrier. In many countries, parts of airports have been designated as tax-free zones so that taxes are not charged on supplies and materials used by their national airlines.