Treasury PS nominee seeks KQ sale to foreign strategic investorTuesday November 15 2022
Principal Secretary nominee for Treasury will push for a foreign strategic investor to buy a controlling stake in Kenya Airways as a path of returning the national carrier to profitability.
Treasury Principal Secretary nominee Chris Kiptoo told MPs the government will push for a fresh equity investor who is expected to inject capital and offer management expertise in the next step of restructuring.
If the sale goes through, it would see the State reduce its shareholding from 48.9 percent and cut the ownership of lenders who converted their debt to a 38 percent stake.
Air France-KLM owns a small stake in Kenya Airways and it remains to be seen if the multinational, previously KQ’s anchor shareholder, will sell its remaining 7.76 percent stake.
Kenya will prefer a cash-rich foreign airline as a strategic investor in a plan that could offer the national carrier aviation expertise and cut its reliance on the State for operational cash.
“It is time to relook the national carrier and ensure that it continues to operate without government support. We need to bring in a strategic investor,” Dr Kiptoo told the National Assembly Finance and National Planning committee vetting principal secretary nominees.
He said KQ, as the national carrier is popularly known, operated profitably when a private investor pumped in money and that the government must seek the model in the push to return the airline to profitability.
The government in 1995 sold a 26 percent stake in KQ to Dutch airline KLM and sold a further 22 percent stake to local shareholders through an initial public offering at the Nairobi bourse in 1996. The deal offered KLM seats on the KQ board, the right to appoint certain executives, in particular the CFO, and act as the technical partner for the national carrier.
KLM has reduced its stake from 26.7 percent after the conversion of State debt and bank loans to equity diluted the firm’s ownership to 7.76 percent.
The multinational had expressed its desire to exit KQ when the government opted to nationalise the airline.
In 2021, KQ agreed with Air France-KLM to end a code share for Africa-Europe routes.
The national carrier has received multi-billion shilling State bailouts amid delayed recovery from a travel slump following Covid-19.
The fresh restructuring plan comes after the State dropped the favoured long-term solution that was anchored on nationalisation of the airline.
The plan approved by lawmakers in July 2019 would have led to the delisting of the airline from the Nairobi Securities Exchange (NSE).
Roads, Transport and Public Works Cabinet Secretary Kipchumba Murkomen during his vetting also alluded to a plan split KQ into various subsidiaries along its main business lines.
He did not offer details how the breakup would help turn around the carrier that has been in losses for over a decade. KQ’s main business lines—cargo, passenger and handling—are all in losses.
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Passenger service returned an operating loss of Sh4.5 billion, cargo Sh1.74 billion and handling Sh166 million.
This marks a departure from the Treasury’s earlier position to pursue a turnaround under the plan to nationalise KQ.
A law to pave the way for the nationalisation of the airline, which had been proposed before the pandemic, is before Parliament.
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Kenya wanted to emulate countries like Ethiopia which run 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 MPs, KQ would become one of four subsidiaries in an aviation holding company.
The others would be Jomo Kenyatta International Airport, an aviation college and the Kenya Airports Authority operating all other airports.
The previous administration, which was replaced by President William Ruto’s on September 13, pushed for the restructuring of the carrier on the back of the multi-billion shilling bailout after dropping the nationalisation plan. Mr Murkomen told Parliament that the State would not convert its debts or bailout cash into shares.
“We do not want to cross the 50 percent shareholding because we want KQ to remain a privately owned company,” he said. “We have to ask ourselves why KQ is in the situation it is currently. It is because of mismanagement of project Mawingu, but there is a restructuring process currently underway,” he said.
KQ recorded a ninth consecutive half-year loss, sinking it Sh15 billion deeper into a negative equity position.
The airline, which has been surviving on State bailouts since the Covid-19 pandemic, reported a Sh9.8 billion loss in August — a better performance than the Sh11.48 billion loss it recorded in the same period a year earlier.
It booked a further Sh5.3 billion loss on hedged foreign exchange differences, driving its total comprehensive loss to Sh14.9 billion.