Refine Aviation Bill to create more revenue streams

The National Assembly Bill, which seeks to deliver synergies across the industry is primarily focused on providing structural support for Kenya Airways #ticker:KQ through efficient use of resources with Kenya Airports Authority (KAA).

If the bill is passed as is, the two entities together with the Aviation Investment Corporation will become part of the Kenya Aviation Corporation (KAC).

But various investment areas listed in the bill are not fully representative of the high potential areas of the aviation sector.

For most airlines, cargo and maintenance, repair and operations (MRO) represent the other major areas of divestiture and are more often stand-alone entities.

Other areas like catering, ground handling, medical and the school, which are equally key areas of potential investments do not necessarily represent professional growth and are largely service industry growth areas. MRO investment is furthermore aligned to the government’s Big 4 agenda of manufacturing, an area that has not been fully exploited with regards to the aviation industry.

Whereas the bill goes a long way in creating a sustainable structure for the airline as it competes regionally, it only addresses the functions of the airline as an Air Operator Certificate (AOC) and not the functions of the airline as an Approved Maintenance Organisation (AMO). The two distinct certifications are not well understood and the independent role the AMO plays goes largely unknown due to the fact that it is not a stand-alone entity.

It is worth noting that Kenya Airways’ AMO is currently approved by both Kenya Civil Aviation Authority (KCAA) and European Aviation Safety Agency (EASA) on a broad array of MRO capabilities.

This mutual recognition agreement between the Federal Aviation Administration (FAA) and EASA means that, if desired, Kenya Airways’ AMO can extend its capability to also meet FAA requirements with ease.

KQ’s AMO is also approved by regional civil aviation bodies, including those of Tanzania, Uganda, Botswana, Mozambique, Rwanda, and Burkina Faso.

A brief review of MROs shows the maximisation of revenue bases by major airlines.

Lufthansa Technic contributed 14.7 percent of overall Lufthansa group revenues in 2017 while AFKL Engineering and Maintenance contributed 7.1 percent of overall group revenues in the same year.

In Africa, Egypt Air, South African and Ethiopian are other airlines that have independent MRO entities providing services to the parent airline. Kenya has a vibrant local aviation market rivalled only by South Africa in the region.

These opportunities require a stand-alone MRO entity to foster safety and quality.

While the Bill envisions setting up special economic zones which are a major source of employment, this can only be delivered if the MRO entity within the investment corporation serves the region.

MRO industry is a complex industry whose requirements are best handled differently from other service areas such as ground handling and inflight catering and training.