CONSOLIDATION

KQ welcomes plans to collapse it into aviation holding firm

The main agenda of the holding company is to improve competitiveness of the aviation sector.

In Summary
  • According to the proposed law, KQ, KAA and the Aviation Investment Corporation and other entities will be subsidiaries in the holding company.
  • The airline hopes to fly passengers in July, depending on the advice of the Ministry of Health.
Kenya Airways chairman Michael Joseph /FILE
MERGER PLANS: Kenya Airways chairman Michael Joseph /FILE

Kenya Airways has welcomed the National Aviation Management Bill, 2020 seeking to create an aviation holding company under which the airline's balance sheet will be merged with Kenya Airport Authority.

If the Bill tabled in Parliament on Thursday becomes law, the airline will also be nationalised, buying out minority shareholders, KQ chairperson Michael Joseph told shareholders on Friday.

"If successful, shares will be valued before an offer to the minority later this year," Joseph said.

Pressed by shareholders to explain the barren dividend yields, Joseph said he is counting on the Bill, which seeks to improve the airline’s revenue, to bring the listed national carrier to profitability.

"It is unlikely for dividends to be paid out anytime soon. It is painful but we hope that the proposed nationalisation will see shareholders earn a premium on their shares after the valuation that will factor in sacrifices made," he said.

The airline has for years faced a profit dry spell that will be worsened by the Covid-19 pandemic. Its activities have been grounded since March when the first Covid-19 case was announced in the country and a curfew declared.

KQ, as it is known internationally, reported a gross loss of Sh12.98 billion, a 71 per cent drop compared to Sh7.55 billion loss the previous year.

The carrier attributed the loss to an increase in operating costs that grew by 12.4 per cent to Sh129.1 billion compared to Sh114.8 billion the previous year.

The poor results saw shareholders incur Sh2.23 loss per share, almost double the Sh1.30 loss reported in the previous financial year.

The airline hopes to fly passengers next month, depending on the advice of the Ministry of Health.

"But we expect people won't be flying heavily for a year, and as 2022 is an election year that usually depresses demand, normal won't resume till 2023," Joseph said.

According to the proposed law sponsored by the immediate former leader of Majority in Parliament Aden Duale, KQ, KAA, the Aviation Investment Corporation and other entities established will be subsidiaries in Kenya Aviation Corporation (KAC), the proposed holding firm.

The main agenda of the holding company is to improve the competitiveness of the Kenyan aviation sector.

KAC will have shares in entities and will borrow and lend funds to subsidiaries and oversee the purchasing and disposal of movable and immovable assets for the group.

Under the proposed law, KQ will have all the powers necessary for the proper performance of its functions or as may be assigned by the KAC board.

The initial share capital of KQ will be Sh7.48 billion divided into 74,823,452 ordinary shares as may be varied from time to time in accordance with the provisions of the Companies Act, 2015 while that of KAA will be Sh66 billion divided into 66 million ordinary shares.

The proposed law also creates Aviation Investment Corporation to carry businesses in relation to aviation training schools.

Other duties will be maintenance and repair organisation, aircraft handling, flight catering, aviation medical services, tour and holiday management services and any other business related to or ancillary to the aviation sector as may be determined by the board.

The initial share capital of the Aviation Investment Corporation in the group is set at Sh1 million, divided into 50,000 ordinary shares.

The Bill proposes the formation of National Civil Aviation Council, whose chair will be appointed by the President.

The core mandate of the council will be to integrate policies relating to the aviation sector and other sectors of the economy and assess and appraise the objectives, commitment and risks to the country in respect of actual and potential civil aviation capabilities.

 

- mwaniki fm