Kenya Airways rules out share sale in recovery plan

Kenya Airways planes on the taxi bay at Jomo Kenyatta International Airport in Nairobi, Kenya. PHOTO | NMG

By JAMES ANYANZWA

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Kenya Airways has ruled out the sale of shares to a strategic investor as part of its

recovery plan, even as the Kenya government -- which owns majority stake (48.9 percent) in the national carrier -- mulls surrendering its entire shareholding to a deep-pocketed investor to turn around the company’s fortunes through injection of new capital and technical expertise.

Allan Kilavuka, the airline’s CEO, told The EastAfrican on Thursday that the strategic investor is meant to inject additional capital to the business and not to buy shares owned by the government.

“We are seeking an investor who doubles up as a complementary growth partner. Engagements and talks with potential investors are ongoing and we hope to finalise on this by the end of the year.”

He said that trading the existing shares would not help KQ “because trading is between shareholder and the new shareholder and what is needed is addition funds into KQ.”

Read: Air France-KLM Group downgrades stake in KQ

“So, it is not about government divestiture, it is about addition investment.”

The injection of additional capital into the loss-making airline forms the second phase of the company’s turnaround plan dubbed “Project Kifaru,” which seeks to return the airline to a stable financial footing in three years.

Phase One of the plan involves improving the operating profit, with a target of breaking even at the bottom line by 2024.

Phase Two focuses on sustainability and overall company growth.

“This will be achieved through the injection of capital. We are in the process of identifying suitable investors to inject funding into KQ. Our stability is anchored on strengthening the balance sheet and ensuring that the cash flows and revenues are stable. We project achieving this in three years’ time,” Mr Kilavuka said.

“With regards to the nationalisation, this was an initial strategy as to how we envisioned the airline presenting itself to the marketplace. However, this plan was shelved in 2021.”

The airline recorded a net loss of Ksh22.69 billion ($177.26 million) in 2023, down from Ksh33.26 billion ($259.84 million) in 2022.
In December 2022, President William Ruto met top executives of Delta Airlines, the largest US carrier by market value, during a trip to America, where launched the government’s bid to sell its entire stake in Kenya Airways.

“I’m willing to sell the whole of Kenya Airways Plc,” Dr Ruto told Bloomberg News on the sidelines of the US-Africa Leaders’ Summit in Washington DC.

Read: Treasury: Kenya has paid $109m of KQ debt

National Treasury Principal Secretary Chris Kiptoo did not respond to our questions on the restructuring but he told Parliament during his vetting for the position in 2022 that the government would push for a fresh equity investor, who would be expected to inject capital and offer management expertise.

The idea on the proposed sale of the airline to a strategic investor came after the government dropped a long-term solution anchored on nationalisation in 2021. The plan approved by MPs in 2019 would have led to the delisting of the airline from the Nairobi Securities Exchange.

Last year KQ signalled lack of keenness on the Delta deal, with its chairman Michael Joseph saying at an investor briefing that there were no plans to close the deal. KQ would instead focus on seeking potential investors, including Delta, and South African Airways (SAA).

KQ and SAA signed a Strategic Partnership Framework in November 2021, touted as a key milestone towards creating a pan-African airline. The two partners had set themselves the ambitious target of establishing the structure of the new group holding company by end of 2023.

But Mr Kilavuka says the process has been delayed by the restructuring that is taking place in both airlines.

“We are currently in different phases of this partnerships, including code sharing, sharing of expertise and enhancing mutually beneficial elements, such as technical cooperation,” Mr Kilavuka said.

“All these initiatives serve as a preamble to the bigger pan-African airline discussion, which will require consensus by shareholders of both companies. Worth noting is that the pan-African airline discussion is not exclusively with South Africa; KQ just happens to be an anchor airline.”

The government in 1995 sold a 26 percent stake in KQ to Dutch airline Air France-KLM group and a further 22 percent to local shareholders through an initial public offering (IPO) at the NSE in 1996.

But KLM’s investment has been significantly diluted from 26.7 percent to 7.76 percent after the government and a group of local banks converted their debts into equity as part of a financial restructuring plan to rescue the airline from insolvency in 2017.

Consequently, Air France-KLM has reviewed the treatment of their shareholding in Kenya Airways to reflect what it terms as its “strategic intention,” after the significant dilution of the shares to a non-controlling stake, amid on-going talks of the possible sale of the carrier to another strategic foreign investor.