• Critics of the proposal say it doesn't guarantee that KQ financial position will change for the better
• The government expected to raise cash to buy off shares held by banks which loaned the national carrier Sh21 billion.
Image: FILE
A proposal to make Kenya Airways fully state-owned so that it is merged with Kenya Airports Authority is the riddle in the bid to revitalise the ailing airline.
There are concerns that the entity, as currently structured, cannot run the airport because it is privately owned.
The government has a 48 per cent stake. KQ Lenders Ltd ownership stands at 38.1 per cent, KLM 7.8 per cent, minority shareholders 2.8 per cent, and KQ employees 2.4 per cent.
The call to nationalise the airline emerged during an inquiry by members of Parliament into the proposal by KQ to take over and maintain Jomo Kenyatta International Airport (JKIA) in a 30-year concession.
The question the Transport committee chaired by Pokot South MP David Pkosing is asking is whether making the airline fully owned by the state is the key to ending the deadlock in KQ’s strategy to stay afloat.
Kenya Airways managers Sebastian Mikosz (CEO) and Michael Joseph (board chair) said they sought to run JKIA as a turnaround plan for the airline's dwindling fortunes.
Their proposal has been resisted on grounds that KQ is not only private but also a loss-making entity.
Kenya Airports Authority (KAA) has opposed a Privately Initiated Investment Proposal (PIIP) which seeks to create a special purpose vehicle (SPV) to run the national airport for the stated period.
The takeover proposal was floated amid concerns that KQ, by extension Kenya, is losing its share of the African airspace currently dominated by Ethiopian Airlines.
Mikosz told the committee that the airline has borrowed the ET concept where the carrier and Bole International Airport are under one management.
But KAA says JKIA is its financial mainstay and that handing it over would affect the operations of 300 other airports and aerodromes it runs.
Kenya Association of Air Operators (KAAO) admitted that running the said air facilities will be difficult if KAA loses control.
Col (Rtd) Karumba Waithaka, KAAO chief executive officer, said the airstrips must be maintained since they are enablers to economic development.
“Kenya Airways will run the aerodromes commercially, hence it is prudent that they are run by KAA,” the air operator told MPs.
But for KQ to become a state-owned entity, the government will have to buy out all shares held by KLM and pay banks which loaned KQ Sh21.4 billion.
The airline is heavily indebted. It owes CBA Group Sh3.1 billion, NIC Sh2.1 billion, Equity Bank Sh5.2 billion, National Bank Sh3.5 billion, Co-operative Bank Sh3.3 billion, DTB Sh2.1 billion and KCB Group Sh2.1 billion.
The banks turned the loans into equities for which they hold shares in the national carrier through KQ Lenders Company Ltd.
Kenya Airways also owes KAA Sh5 billion in the wake of the Sh4 billion half-year loss reported in the last declared results. The revenue was posted at Sh52 billion, a chunk of which was sucked by its expensive cost of operations.
The government currently has a 48 per cent stake in the company, KQ Lenders (38.1 per cent), KLM (7.8 per cent), Minority shareholders (2.8 per cent), and KQ employees (2.4 per cent).
The Pkosing committee is mulling over the proposal on grounds that nationalising KQ makes it an equal partner with KAA.
Owing to past mistakes which ushered the costly restructuring, some MPs expressed reservations that nationalisation does not guarantee positive returns.
This came in the backdrop of the government admitting that it is now exploring other ways of consolidating its aviation assets.
“Once an agreed option is identified, we will submit the same to the Cabinet for approval as directed,” Transport CS James Macharia said with a rejoinder that the move would be piecemeal and may not end KQ woes.
He said the government gave KQ the nod to negotiate the PIIP as it is keen on making the country earn more from its aviation assets.
For their part, Kenya Airways Pilots Association (Kalpa) said any proposal that would boost Kenya Airways earnings without any financial input as outlined in the PIIP would be welcome.
However, they warned that the problem with KQ is managerial, adding that experts hired to turn around the airline’s earnings seem to have failed.
Kalpa deputy secretary general Mureithi Nyaga said KQ makes losses because of its high ticket prices, check-in luggage policy, poor choice of aircraft for some destinations, and a poorly paid workforce.
Together with Kenya Aviation Workers Union (Kawu), the lobby groups called for the resignation of KQ CEO, saying he risks downing the airline further.
The questions the lawmakers will consider during its retreat starting April 25 are what will be the shareholding structure should KQ succeed in its quest to implement the PIIP.
Also to be considered is the would-be relationship between the SPV and existing air operators; and conflict of interest on the part of operators.
Edited by Pamela Wanambisi