KQ nationalisation seen as way out amid stiff competition

Bill currently before Parliament

In Summary

•Both the KQ board and the Kenya Airline Pilots Association believe nationalising the airline can help it return to profitability.

•Pilots however worried downsizing the airline could lead to its collpase in the wake of rising regional competition.

Kenya Airways plane Boieng 777-200 ER Photo/file
Kenya Airways plane Boieng 777-200 ER Photo/file

Downsizing of Kenya Airways operations, which has seen hundreds of employees sent home, has led to a bitter fall-out between management and the company's staff, which continues to play out.

This, even as the airline remains in the process of being nationalised, debate pending in Parliament, a move that is expected to help turn-around the national carrier which has remained in losses for the past six years, going into the seventh.

KQ's worst year was 2016, when it reported Sh26.2 billion loss sinking deeper from a Sh25.7 billion loss.

 

This year, it reported a net loss of Sh12.9 billion for the year ended December 2019, a dip from Sh7.5 billion in 2018.

“Some of the contributors of the loss include the adoption of IFRS 16 and increase in operating costs associated with a 15 per cent increase in capacity deployed to offer increased connectivity,” chairman Michael Joseph told investors on May 26.

Covid-19 has worsened KQ's financial position with management saying it has to cut down on operations, including laying off staff to remain afloat.

It is targeting at least 1,500 of the 4,300 workforce it has.

While management insists staff rationalisation is one of the ways to remain afloat, the Kenya Aviation Workers Union (KAWU) and Kenya Airline Pilots Association (KALPA) think otherwise, with nationalisation one of the few options left to turn around the airline.

Both the KQ board and KALPA believe nationalising the airline can help it return to profitability.

The government currently owns nearly 50 per cent of Kenya Airways, 38 per cent is owned by the banks and seven per cent is owned by KLM. Minority shareholders own the balance.

 

According to KQ chairman, the carrier has in the current financial year put out some money for buying out the minority shareholders, individual shareholders; these are the people who bought shares in Kenya Airways.

“We have no money to buy out the banks and KLM, but our intention is to give them some kind of arrangement, that they will get their money in the next five to eight years,” Joseph said in an interview with the Star.

KALPA has said nationalisation is the only way out but “it is not a silver bullet”, if it is not handled well.

“Let's not have political appointees run our airline. Let's get aviation experts on the table,” KALPA general secretary Captain Murithi Nyagah said in an interview.

According to KALPA, KQ management should also look into other issues leading to high operational costs, mainly aircraft leases, which are working against the airline's balance sheet.

Some of the leases include three Boeing 777-300s leased to Turkish Airlines where KQ is forced to pay extra to the initial leaser after Turkish Airlines bargained for cheaper rates.

KQ has an annual wage bill of Sh12 billion against a revenue stream of Sh128.32 billion, as of last year, with the costly aircraft lease deals being blamed for eroding its gains.

“Even if all KQ staff worked for free, it will still make losses if critical issues are not addressed,” Nyagah is on record saying.

The National Aviation Management Bill, 2020 seeks to create an aviation holding company under which the airline's balance sheet will be merged with Kenya Airports Authority.

The National Assembly Transport committee, chaired by Pokot South MP David Pkosing, said there would be no job losses.

“There will be more flights, hence more ground handlers, more hotels, more crew and so on. Nobody is targeted to lose jobs in the new structure,” the MP told the Star recently.

KALPA has since written to President Uhuru Kenyatta to help save the airline, arguing that downsizing will be to the advantage of competitors such as Ethiopian Airlines.

The airline is currently operating more flights from the Jomo Kenyatta International Airport, KQ's hub, than Kenya Airways itself.