Kenya Airways, originally established in 1977 following the break-up of East Africa Community, was privatized in 1996 and since then it has achieved many firsts in the aviation sector in Sub Sahara Africa including, 1st carrier to be certified under the International Air Transportation Association’s (“IATA”) Operational Safety Audit (“IOSA”), and Safety Audit for Ground Operations (“ISOGA”) as well as been the first Sub Saharan Airline to achieve Sky Team alliance membership. KQ’s operational and financial track record in the last 10 years is a stellar one marked by rapid growth and consistent profitability.

Since the beginning of the past decade, the company focused on modernizing its fleet, transitioning part of its wide-body fleet from Airbus A310 to the then recently launched Boeing B777 and its narrow-body fleet from Boeing 737 classics to Boeing 737 New Generation while at the same time investing in operating systems and training its labor force. The fleet modernization and growth from 16 planes in 2002 to 31 in 2011 resulted in revenue growth from US$320 million to over US$1 billion while at the same time maintaining healthy load factors, improving productivity and achieving extremely solid margins.

KQ is a public company with shares listed on the Nairobi Securities Exchange (“NSE”), the Uganda Securities Exchange (“USE”) and the Dar-Es-Salaam Stock Exchange (“DSE”). KQ’s largest shareholder is KLM (Dutch airline) with 26.0% of the shares. Approximately 40% of the ownership is held by foreign shareholders and the largest Kenyan shareholder is the Government of Kenya with 23.0%.

The total Project cost is estimated at more than US$3 billion, which will be funded by a combination of equity, internal cash generation, Pre-delivery Payment (“PDP”) facilities and Export Agency Aircraft term loans over more than five years. The equity will be provided through a Rights Issue Offer which began on April 2 and is scheduled to conclude on or about June 30 2012.

The proposed IFC investment is a US$80 million senior secured PDP facility in the form of an “A Loan” and an equity investment to complement the Rights Issue Offer in amount up to US$25 million.

105.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	80.0
Equity	25.0

* These investment figures are indicative

The Company is headquartered in Nairobi, Kenya with its main ground handling activities, administrative offices and operations center located at the Jomo Kenyatta Airport. KQ currently flies to 56 destinations in Africa, Middle East, Asia and Europe.

IFC''s support of Kenya Airways expansion plan will have significant development impact. From a social and labor point of view, the Company estimates that the number of employees will nearly double after five years (currently 4,400 employees) most of which are of a technical/qualified labor nature. At the regional level of Sub Saharan Africa ("SSA"), the launch of the freighter division coupled with the opening of new intra-Africa destinations will contribute to markets integration and will reduce the transactional costs of trade, an aspect that is extremely important to promote the economic development of the SSA economies. Finally, KQ''s entry into new international markets will promote competition as well as provide a key transportation link between growing economies in the Middle East and Northern Africa ("MENA") region and Asia promoting international trade, South South Investments and tourism to and from Africa.

A growing airline faces an array of capital needs that includes financing the aircraft they operate but also investing in inventory of spares parts and engines, making pre delivery payments associated to their aircraft orders and investing on training as well as in new management systems. While senior debt for 85% of the aircraft purchase price should be available under Export Credit Agency cover, IFC''s role in the proposed transaction is: i) to provide scarce PDP financing to an airline that is undertaking an expansion to open underserved markets within Africa. This type of financing is currently not readily available in the market from financial institutions that are reluctant to increase their exposures to the airline sector, except for export credit agency backed financing for the purchase of aircraft. ii) Demonstration effect: KQ is undertaking a significant expansion that requires the support of many investors. IFC''s equity investment will play its demonstration role by providing its stamp of approval to the expansion plan, with a potential facilitation effect of the Company''s upcoming Rights Issue and iii) IFC will also contribute its technical, market, industry expertise and lessons learned by leveraging its investment experience in similar sized and situated carriers.

This is a Category B project according to IFC’s Policy on Environmental and Social Sustainability. Further details on the main environmental and social issues can be found below. Air transport is a highly regulated industry that has well established policies and procedures for managing the environmental, health and safety performance of accredited carriers such as Kenya Airways.

Please refer to the related Environmental and Social Review Summary (ESRS) document for this project.

Please refer to the Environmental and Social Action Plan (ESAP) tab in the related Environmental and Social Review Summary (ESRS) document for this project.