Kenya Airways: Still Hope in The Flying Corpse?

News that Equity Bank, KCB, and CBA have lost value close to Kshs 8.6 billion owing to Kenya Airways(KQ) shares dropping 51.7 percent worth to close at 3.75 shillings is not only alarming but also contradicts the on-going conversation for KQ to take over Jomo Kenyatta International Airport(JKIA) management.

The lenders were issued with shares in 2017 to settle their loans in exchange for 38.1 percent shareholding.

A number of issues abound, worth considering in the advent of the proposal by KQ to set up a special purpose vehicle to operate, manage and develop JKIA. KQ’s own stability comes into sharp focus in this discussion.

First, KQ is privately owned by investors by the mere fact that it is a publicly listed company, while JKIA is a public utility being the largest facility managed by Kenya Airports Authority.

The strategic move by airlines to manage airports has previously been employed by some national carriers mostly owned by the government.

A perfect example is Qatar Airways, the national carrier for the oil-rich middle east nation based in Doha. Qatar Airways currently manages the 30 million passenger capacity Hamad International Airport.

Last year the airport served a total of 34.5million passengers and handled 2.1 million tonnes of cargo, up 8.4% on the previous year. One would also note that Qatar Airways receives government subsidies in the form of interest-free loans, debt write-offs, government loan guarantees, non-repayable grants, airport tax exemptions, and rebates and access to free land.

But KQ has also benefited from the regime’s clemency despite being a public listed company. The government of Kenya has 48.9 percent shareholding followed by a consortium of local lenders. KQ has preferential treatment when it comes to airport facilities and services.

A report by Treasury Secretary Henry Rotich to parliament early this month shows the government has written off Kshs 24.2 billion it advanced to Kenya Airways. The airline was the biggest beneficiary among corporations getting 89 percent of all the write-offs by the government in favor of state agencies.  The government has previously guaranteed and secured loans for KQ from local and international lenders.

Despite government financial favors, KQ’s fortunes have not been promising, in fact to an outsider, it looks dwindling considering the substantial debt restructuring plan since 2017. KQ has been loss-making for the last six years accumulating a loss of Kshs 89.3 billion since 2013. In 2017, the airline hired Mr. Sebastian Mikosz, credited with turning around LOT Polish Airlines. He teamed up with a former telecoms czar, Mr. Michael Joseph to return the airline to profitability. Despite a number of operational and organizational restructuring initiatives, the airline is still in the red.

To manage a large facility like JKIA, KQ needs to put its house in order first. This airport has proved to be a leading transport and logistics hub in Africa due to its strategic economic and geographical positioning. It is from JKIA that we have direct flights to the USA, a dream for most African states, as well as serving all the key travel destinations across the world.

An organization managing JKIA needs to have substantial financial stability which KQ lacks at the moment. For now, the airline can negotiate with the government for some of the benefits it requires to gain a competitive edge like airport tax exemptions, interest-free loans and guarantees for loans if need be. Otherwise, let this matter rest.