Debunking JKIA concession myths

We need to debunk the popular myths around the proposal to concession the Jomo Kenyatta International Airport (JKIA) to Kenya Airways #ticker:KQ before we can reach a consensus on what is in the national interest of the country. As I followed debate on the subject matter during hearings by parliamentary committees this week, I felt that positions were being taken on the basis of popular myths.

It is a myth to assert that the Kenya Airports Authority (KAA) is a profitable State corporation as opposed to Kenya Airways- a deeply- indebted and unprofitable outfit. We must remember that the assets it owns and runs were built by the taxpayer.

The money it makes is from revenues the organisation collects for assets it did not contribute to building. If you offset the full cost of these State-built assets sitting in the authority’s books, those huge surpluses are bound to melt away.

Why are we pretending that JKIA is being run as efficiently as Dubai Airport or Heathrow?

Clearly, the argument that trying to concession JKIA to Kenya Airways amounts to handing over a profitable company to an insolvent entity is based on a popular myth.

The second popular myth is that Kenya Airways is a privately-owned company and that handing over JKIA to the airline amounts to ceding ownership of a publicly–owned asset to private interests.

The truth of the matter is that after last year’s financial restructuring of Kenya Airways, the private shareholders were almost diluted to obscurity.

For instance, KLM’s stake in the company used to be 26.7 percent. Currently, the stake has dwindled to 7.8 percent compared to 48.9 percent for the State. The stake of the minority shareholders has dwindled from 43.4 percent to 2.8 percent.

Indeed, the only private interests with a substantial stake is the entity known as KQ Lenders (2017) Ltd which came about out of a complex equity-debt swap process that set the stakes of the group at 38.1 percent.

As a matter of fact, the path to returning the company to full ownership of the State and to the delisting of the stock from the Nairobi Securities Exchange now looks irreversible.

Some of the pertinent questions we must ask ourselves as we debate the proposal to concession JKIA to the national flag carrier are the following.

First, can we afford to lose our national carrier?

This is a pertinent question because Kenya Airways plays a major economic role in the country, especially where tourism and the horticultural sector are concerned.

Indeed, when you look at trends in the region, you will see that African and Middle East carriers are now using their airlines as instruments of economic development, geopolitical presence and promotion.

Today, having a national airline has become much more significant than the mere earning of dividends for shareholders.

Does it really make sense for us to cede our airspace to Middle East and Ethiopia carriers?

If we do not put Kenya Airways on a new strategic direction, the airline will be pushed out of the market by rivals that enjoy strong protection by their governments.

Granted, the government took an important step last year by negotiating $750 million in sovereign guarantees to the company’s international creditors.

However, that balance sheet restructuring process did not address the root causes of the airline’s market problems.

It is important to note that among its competitors, Kenya Airways is the only one that has been privately owned, publicly-listed and that does not benefit from airport revenues.

It is the only carrier that is not cross-subsidised by other carriers in its main hub.

This is background that informs the proposal to concession JKIA to the airline and to put the company on an even keel with its highly-subsidised competitors.

If nothing happens, the situation risks triggering the sovereign guarantees held by its international creditors.