KQ among firms eyeing Air Madagascar stake

What you need to know:

The government of Madagascar is seeking a strategic investor “willing to invest in the company by taking minority equity shares and by bringing know-how to the airline as well as committing to run it.”
Kenya Airways’ interest in owning a piece of the Madagascar national carrier, and helping to revive it, comes at a time when it is itself in desperate need of about Sh60 billion to recapitalise the loss-making business.

National carrier Kenya Airways has been shortlisted among seven airlines interested in acquiring a minority stake in Air Madagascar, which is looking for a strategic partner to help turn around its fortunes.

The management of the cash-strapped Air Madagascar recently disclosed that Kenya Airways, Air Austral, Ethiopian Airlines, Air Mauritius and South African Airlink are some of the carriers gunning for a stake of up to 49 per cent.

The government of Madagascar, with financing from the World Bank, is seeking a strategic investor “willing to invest in the company by taking minority equity shares and by bringing know-how to the airline as well as committing to run it.”

Kenya Airways’ interest in owning a piece of the Madagascar national carrier, and helping to revive it, comes at a time when it is itself in desperate need of about Sh60 billion to recapitalise the loss-making business.

The airline, which is 29.8 per cent owned by the Treasury and 26.7 per cent owned by Air France- KLM, has posted four consecutive full-year losses beginning March 2013.

In the year to March, KQ posted a net loss of Sh26.2 billion.

“Air Austral, Air Mauritius, South African Airlink and Kenya Airways are among four of the last seven finalists at the opening of the bids,” Gilles Filiatreault, Air Madagascar’s general manager, is quoted as saying by the Madagascan press.

The management of KQ, as the airline is known by its international code, did not respond to the Business Daily’s queries on the matter by the time of going to press. Air Madagascar, which is majority-owned by the Madagascan government, was founded in 1947.

Madagascar is an island nation in the Indian Ocean off the southeastern coast of Africa. Its national carrier has a fleet of 13 aircraft which fly to 18 destinations including Paris, Marseille, Mauritius, Comoros, Reunion, the Seychelles and Mayotte as well as 11 domestic routes.

The carrier has 1,117 employees and is based at Ivato International Airport in Antananarivo, Madagascar’s capital city.

Air Madagascar says it needs about $25 million (Sh2.5 billion) in the form of a loan to rescue the company burdened by high-cost debts, an ageing fleet, high staff costs and unprofitable routes.

A new board and management has already undertaken a reduction in routes and costs. The government of Madagascar recently engaged Dubai-based TroyAvi Aviation Consultants to select a suitable strategic partner, marking the next stage in the rescue plan.

“We are on schedule. Air Madagascar will resume its takeoff in the first quarter of 2017 with its new strategic partner,” said Benjamina Ramantsoa, Madagascar’s minister of transport.

Daily flights

Kenya Airways, which operates daily flights to Madagascar, is bidding for a stake in the ailing airline even as it looks to stabilise its business back at home.

KQ’s business has in recent years come under pressure due to expensive loans, low tourist numbers, and the Ebola outbreak in West Africa among several other negative factors.

The national carrier is implementing a McKinsey-backed restructuring plan which has led to interventions like sale or lease or aircraft, balance sheet restricting and staff cuts, aimed at steering the business back to profitability.

Mbuvi Ngunze, the airline’s chief executive, has in the past said Kenya Airways requires about Sh60 billion in a mixture of equity and debt to plug its huge capital hole.

The airline’s precarious financial situation makes its interest in a slice of Air Madagascar unusual.