- Treasury CS Ukur Yatani says the government working on a restructuring plan.
- Says exchequer to continue supporting the airline to reap from ripple effects.
Image: ANDREW KASUKU
The government has dropped plans to nationalise Kenya Airways leaving the airline with no option but to restrategise how to return to profitability.
The state was to take over the KQ liabilities— to the tune of over Sh240 billion and a Sh184 billion debt as of June 2021—and ease the burden on the entity’s daily operational needs.
But that remains suspended until further notice after the state withdrew the bill which was anchoring the transition of Kenya Airways into a wholly-owned parastatal.
The National Aviation Management Bill, 2020, sought to put in place an aviation council chaired by the President and a holding entity to manage the airline.
The National Aviation Council and the Kenya Aviation Corporation were set to be the key decision making organs for the entity’s operations.
KAC was to be a holding corporation for the airline and its operating entities including subsidiaries and connected issues.
Speaker Justin Muturi said he had received a notification from Majority Leader Amos Kimunya—the sponsor, for the withdrawal of the legislative piece.
“This is to enable further consultations and also to incorporate additional input from stakeholders received during the public participation phase,” he said.
Muturi said the sponsor of the bill was at liberty to re-introduce in line with the House rules at any juncture.
However, despite the speaker’s assurances, the government may have as well abandoned the plan in its entirety to focus on a turnaround.
Treasury Cabinet Secretary Ukur Yatani told the Star that the government went slow on nationalisation on grounds it was not timely.
“We have toyed with a lot of options…one was to nationalise but we realised it was not timely as it would bring some serious challenges,” he said.
He pointed out the KQ loans which the government has guaranteed, arguing that nationalisation would have brought the additional challenges of debt repayment.
“We thus chose to come up with a revival plan, reform the cost centres, restructure, reduce the number of routes, especially those that are not profitable,” the CS said.
Yatani said the exchequer will continue to inject resources into the airline over a period of time to retain its strategic role in the country’s economy.
“We inject resources and will continue to do that. We have not put little but substantial resources over a period of time.”
“If we lose it (KQ) now, all business will migrate to South Africa, Rwanda and then we would lose our competitive edge in the region as a diplomatic and tourism hub,” Yatani said.
He added that Jomo Kenyatta International Airport, should KQ run into further troubles, is likely to lose its place as the entry point to East Africa.
“Kenya Airways might not make business on their own but the auxiliaries are going to cushion and reduce the effect of the losses,” the CS said.
The government holds the view that KQ ran into headwinds after it failed to adapt to the changing dynamics, hence is dying from the effects of entropy.
The concern is that the KQ business model is faulty for the use of expensive planes that are leased at high rates.
Kenya Airways’ other bane, according to the government, is pilots “who are among the highest-paid but working fewer hours” under the protection of an assertive union - Kenya Airline Pilots Association.
“The bigger challenge is that they are not able to reduce on their internal administrative cost—salaries and management. The business model is wrong,” Yatani said.
“We were grappling with these concerns to see a way forward then were hit by Covid-19 which paralysed all airline services in the world.”
The overall view is that KQ “doesn’t make much of a business sense were it not for the complementary role it plays in the economy.”
KQ is thus sustained on grounds it is an entry point for other opportunities —like the conferences which follow the country’s hosting of the UN.
The airline is also said to support the flower and horticultural sectors. “We don’t have it just to make a profit but for the multiplier effect on the economy.”
“It boosts trade, service, helps hotel business, and exports hence remain an important service we cannot dispense with,” Yatani said.
The nationalisation plan followed the botched privately initiated investment which was to transform KQ to be managed by a special purpose vehicle.
-Edited by SKanyara