Columnists

Kenya Airways isn’t worth bailing out

allan-kq

Kenya Airways CEO Allan Kilavuka during a January 18 briefing in Nairobi. PHOTO | DENNIS ONSONGO | NMG

Summary

  • For KQ management, it is asking for a Sh50 billion bailout this year despite the Treasury having already extended a Sh26.5 billion lifeline fund to airline this year.
  • Just to give you an idea of what Sh.26.5 billion is, it is close to the budget of Parliament and the Judiciary put together.
  • This Sh50 billion request is coming at a time when the government says it has no money for procurement of the Covid-19 vaccines and plans to borrow Sh10 billion from development partners.

Evolution in economic life helps those with the maximum amount of hidden risks become the biggest. This nugget of wisdom from Nassim Taleb is a lesson we completely missed on Kenya Airways.

Last week, the airline announced that it had nearly tripled its losses, clocking Sh36 billion. This is the worst ever loss in the history of the airline and corporate Kenya.

Now, people driving a school bus blindfolded should never be given a new bus.

For KQ management, it is asking for a Sh50 billion bailout this year despite the Treasury having already extended a Sh26.5 billion lifeline fund to airline this year.

Just to give you an idea of what Sh.26.5 billion is, it is close to the budget of Parliament and the Judiciary put together.

So, when KQ management asks for a Sh50 billion bailout, do they even have a rough picture of what else the taxpayer can do with that amount?

Let me help the airline management with the opportunity cost of Sh50 billion to the taxpayer right now. That is the purchasing power of procuring the AstraZeneca vaccine for 70 percent of Kenya’s population.

This Sh50 billion request is coming at a time when the government says it has no money for procurement of the Covid-19 vaccines and plans to borrow Sh10 billion from development partners.

But it has Sh26.5 billion for KQ to burn then the management of the airline always gets surprised and takes issue with why Kenyans are invested in the airline’s performance.

The KQ bosses are oblivious to the fact that it is Kenyans who have foregone social economic development to try and clean their mess.

The KQ management will defend the company by arguing that money extended to them by the Treasury is in form of loans and that part of the Sh50 billion may come from commercial lenders. Yet in both cases, it is the taxpayer who carries the cost.

On the Treasury extending the bailout in form of loans, those are taxes which should be used on social economic development for the taxpayers.

If they are coming in form of commercial loans, it is still the taxpayer who guarantee those commercial loans, some of which have been written off at a loss to the taxpayer.

A company that has liabilities of close to Sh250 billion, makes a loss of Sh36 billion and requires a bailout of Sh50 billion in one year alone is not a company worth keeping afloat.

Nothing should ever be too big to fail. It’s time to declare KQ insolvent and liquate it because it has become an albatross that needs to be cut off the neck of the taxpayer. The airline doesn’t deserve another shot in the arm but a shot of euthanasia.

I can bet that five years from now, the airline will still be in need of taxpayers’ bailout, with the cost much higher than what we are seeing today. I am ready to take this bet with anyone at KQ.

The best proposition is to shut KQ and consider Jambojet as our legacy airline because it is cheaper scaling it to a bigger airline looking at its low operating costs than saving KQ.

It’s also time KQ management retired those fallacious threats that Kenya will lose its status as the regional hub if KQ collapses because of the competition from Rwanda Air. That argument exposes their lack of economic mind.

The threat Rwanda Air poses to KQ is not synonymous with the threat Rwanda’s business environment poses to Kenya.

Rwanda’s electricity consumption a year is around 500MW whilst Kenya’s is four times that. Clearly, Rwanda is not Kenya’s peer as a business powerhouse.

But the broader conversation out of this is why privatisation of State-owned companies seems to be failing.

We privatised State-owned companies mainly because we were moving them away from government’s balance sheet.

But we have seen a trend where many are coming back on the taxpayers’ bill — from Uchumi to Mumias, Kenya Airways and now Kenya Power.