Kenya Airways planes are seen parked at the Jomo Kenyatta International
Airport near Nairobi, Kenya on March 6, 2019. PHOTO | THOMAS MUKOYA |
REUTERS
Kenya will take at least 21 months to take back full control of
its national carrier Kenya Airways, buying out minority shareholders and
converting shares held by banks into Treasury bonds, a lawmaker briefed
on the transaction said.
The loss-making airline,
which is 48.9 per cent government-owned and 7.8 per cent held by Air
France-KLM, was privatised 23 years ago but sank into debt and losses in
2014. Lawmakers voted to re-nationalize it this week.
“The
(transport) ministry needs three months to think through and then give
us a proposal on the aviation shareholding company and the entire
structure,” David Pkosing, the chairman of parliament’s transport
committee, told Reuters.
He estimated buying out shareholders would take 18 months.
A
failed expansion drive and a slump in air travel forced the airline to
restructure $2 billion of debt in 2017. But Kenya Airways still needed
cash for fleet and route expansion amid growing competition from
Ethiopian and Emirates.
Minority shareholders, who hold
about 3 per cent of shares, will be bought out for about 800 million
shillings ($7.71 million), Pkosing said.
A consortium of local lenders, who acquired 38 per cent of the
company’s equity during the 2017 restructuring, could be paid through
government debt, possibly 10-year Treasury bonds, Pkosing said.
Lenders’ representatives on the airlines’ board were not immediately available for comment.
The
banks hold their stake through a joint, special purpose vehicle. They
are likely to accept the deal given the airline’s losses, said Eric
Musau, head of research at Standard Investment Bank in Nairobi.
“If
you look at the lenders, they have no interest in owning the airline
other than getting back the amount that they lent,” Musau said.
Air-France
KLM, which declined to comment, will have the option of selling its
stake to the government and staying on as a technical partner for the
airline, the lawmaker said.
Holding company
Kenya
wants to emulate countries like Ethiopia, which runs air transport
assets - from airports to fuelling operations - under a single company,
using funds from the more profitable parts to support others.
Under the model approved by lawmakers, Kenya Airways will become one of four subsidiaries in an Aviation Holding Company.
The
others will be Jomo Kenyatta International Airport (JKIA), the
country’s biggest airport; an aviation college; and Kenya Airports
Authority, which will operates all the nation’s other airports.
“The balance sheet of the aviation holding company will be healthier than Kenya Airways alone,” Pkosing said.
Kenya
Airways could renegotiate its aircraft leases based on its reduced risk
profile, he said, noting the airline needs more than its 40 planes.
JKIA
alone has annual revenues of Ksh12 billion ($115.6 million), half of
which is profit, lawmakers said. The airports authority owns thousands
of acres of land that would shore up the new group’s balance sheet.
Nationalisation
will exempt Kenya Airways from taxes on engines, maintenance and fuel,
allowing it to sell cheaper tickets, Pkosing said.
The airline charges more than competitors, forcing price-sensitive passengers through hubs like Addis Ababa and Kigali.
“The
model we are proposing is not new, it is being used by Emirates,
Morocco, Egyptian, Ethiopian. Most successful airlines operate in the
same model,” Pkosing said.
Government officials said the airline is vital to encourage investment and bring in tourists.
But some said the government failed to manage the airline properly in the past.
“Leasing
the aircraft is shrouded in secrecy. When you look at the staffing, the
pay roll, its very high,” said Mohammed Hersi, Chairman of Kenya
Tourism Federation.
“In Kenya we think any parastatal
is a home for employing people, we forget productivity but when it comes
to business out there, we will be eaten alive.”
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