Kenya Airways seeks cash-rich foreign airline investor – ch-aviation
Kenya’s National Treasury wants a cash-rich foreign airline to buy a controlling stake in Kenya Airways (KQ, Nairobi Jomo Kenyatta) as a solution to returning the national carrier to profitability, reports Nation Media.
This was the word from Chris Kiptoo, Principal Secretary nominee of The National Treasury, who appeared before the Departmental Committee on Finance and Planning at County Hall in Nairobi on November 14, 2022.
He told lawmakers the equity investor would be expected to inject capital and offer management expertise in the next step of restructuring the flag carrier. The state would reduce its shareholding from 48.9% and cut the ownership of lenders who would convert their debt to hold 38%. No mention was made of Air France-KLM, which owns 7.76% of Kenya Airways.
Kiptoo said Kenya would prefer a foreign airline as a strategic investor in a plan that could offer the national carrier aviation expertise and cut its reliance on the state for operational cash. “It is time to relook at the national carrier and ensure it continues operating without government support. We need to bring in a strategic investor,” he said.
He said Kenya Airways operated profitably when supported by KLM Royal Dutch Airlines (KL, Amsterdam Schiphol) and that the government must return to this model to return the airline to profitability.
Kiptoo made no mention of the planned pan-African alliance between Kenya Airways and South African Airways (SA, Johannesburg O.R. Tambo), which have set themselves the target of establishing the structure of a new group holding company by the end of 2023.
Roads, Transport and Public Works Cabinet Secretary Kipchumba Murkomen alluded to a plan to split Kenya Airways into various subsidiaries along its primary business divisions of passenger, cargo, and ground handling services, all operating at a loss.
Murkomen told Parliament the state would not convert its loans into shares. “We do not want to cross the 50% shareholding because we want Kenya Airways to remain a privately owned company,” he said.
The airline, which has been surviving on state bailouts since the pandemic, reported a KES9.8 billion shilling (USD80.3 million) loss in August 2022, an improvement on the KES11.48 billion (USD94.1 million) loss in the same period in 2021. It reported a further KES5.3 billion (USD43.4 million) loss on hedged foreign exchange differences, driving its total loss to KES14.9 billion (USD122.2 million). Passenger services have returned an operating loss of KES4.5 billion (USD36.9 million), cargo KES1.74 billion (USD14.2 million), and ground handling KES166 million (USD1.3 million).
Kenya Airways is currently being restructured with state loans that will have to be repaid. The restructuring plan came after the government dropped a plan approved in 2019 to fully re-nationalise the airline. State loans include KES20 billion (USD173.9 million) in May 2022; KES11.3 billion (about USD95 million) in the half-year ending June 30, 2022, following loans of KES11 billion (USD95.2 million) in 2020, and KES14 billion (USD121.1 million) in 2021.
Kenya Airways (KQ, Nairobi Jomo Kenyatta) has declined to comment on reports the government plans to temporarily lease in freighters to safeguard the country’s fresh produce exports in the wake of disruptions caused by the recent pilot strike.
The Star newspaper quoted Agriculture Minister Franklin Mithika Linturi saying his ministry was “working on a temporary measure to avail special planes to avert further losses in the sector”.
Kenya Airways Chief Executive officer Allan Kilavuka declined to comment when approached by ch-aviation. The airline has two in-house narrowbody B737-300(SF)s, according to the ch-aviation fleets advanced module.
Speaking at a consultative forum recently under the auspices of the Fresh Produce Consortium of Kenya (FPCK) and Bureau Veritas, Linturi said flight disruptions caused by the recent Kenya Airways pilot strike had cost horticultural exporters more than KES200 million shillings (USD1.6 million).
He said the government’s economic survey for 2022 shows the value of horticultural exports increased from KES150.2 billion (USD1.2 billion) in 2020 to KES157.7 billion (USD1.2 billion) in 2021.
Kenya is particularly…
Government loans extended to Kenya Airways (KQ, Nairobi Jomo Kenyatta) do not automatically convert the airline into a public entity, according to the High Court of Kenya.
Based on this conclusion, the High Court recently dismissed a petition by Senator Okiya Omtatah that sought to prohibit Kenya Airways from sending its pilots to flight schools in South Africa, reported The Star newspaper. Omtatah had sought an order compelling Kenya Airways, as a recipient of public funds, to procure its pilot training services and other goods and services in Kenya. The petitioner claimed Kenya Airways discriminated against local pilot training schools and pilots trained by local institutions licensed by the Kenya Civil Aviation Authority (KCAA).
According to a statement issued by ALN Kenya, the lawyers for Kenya Airways, the petitioners sought to have Kenya Airways designated a public entity, which would subject it to the Public Finance Management Act (PFMA), the Public Procurement and Asset Disposal Act (PPADA), and the State Corporations Act (SCA). The legal argument was centred on shareholder loans extended to the airline…
Kenya Airways (KQ, Nairobi Jomo Kenyatta) has promised to clear a KES6.5 billion shilling (USD53.4 million) backlog in deferred salaries by June 2023 to diffuse staff unrest at the airline, according to Chief People Officer Tom Shivo.
A four-day pilot strike that ended on November 9 was expected to have cost the airline KES300 million (USD2.4 million) a day, or KES1.2 billion (USD9.8 million).
After downing aircraft on November 5, the Kenya Airline Pilots Association (KALPA) on November 8 called off the strike, saying its members would resume duties first thing on November 9. This came after Kenya’s Employment and Labour Relations Court ordered pilots to resume work, resulting in KALPA withdrawing an October 19 notice of industrial action.
Kenya Airways Chief Executive Officer Allan Kilavuka earlier warned of a severe economic impact on different economic sectors of what he termed an “illegal” strike that was also “ill-timed and unnecessary” as it would impact the airline’s ability to recover and meet its obligations. “At a minimum, the unlawful industrial action will cost Kenya Airways…
Kenya Airways (KQ, Nairobi Jomo Kenyatta) Chief Executive Officer Allan Kilavuka has disputed reports the airline has defaulted on a USD841 million loan from EXIM Bank (United States of America) for the purchase of aircraft, as cited in the latest Annual Debt Management Report (2021/2022) of Kenya’s National Treasury.
Of the amount, the government had guaranteed USD525 million. “Kenya Airways defaulted on both the guaranteed portion of the loan amount as well as the non-guaranteed portion,” the National Treasury said. “The National Government is in the process of novating the debt to be finalised during the 2022/2023 fiscal year.” [Novation enables a lender to transfer its interest in a loan to another lender.] The Treasury said it would closely monitor contingent liabilities arising from state-owned enterprises, as they posed major risks to the economy.
ch-aviation approached Kilavuka for comment. He earlier told The East African newspaper that: “The value you quote for the US EXIM facility is not correct. USD485 million is what relates to the US EXIM guaranteed debt. I don’t have…
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