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How KQ demanded KAA data before it tabled merger proposal

Jomo Kenyatta International Airport
Jomo Kenyatta International Airport. FILE PHOTO | NMG 

Kenya Airways #ticker:KQ demanded access to confidential Kenya Airports Authority (KAA) data and critical IT systems two days before it tabled a proposal to take over management of the Jomo Kenyatta International Airport (JKIA).

The national carrier, known by its international code KQ, equally demanded unfettered access to JKIA’s facilities in which it conducted site visits as part of its due diligence, documents tabled before Parliament’s Public Investments Committee (PIC) have shown.

KQ chief executive Sebastian Mikosz, in a confidential memo written on October 3, 2018 to KAA managing director Johnny Andersen, requested data and information two days ahead of submitting the Privately Initiated

Investment Proposal (PIIP) to KAA on October 5. “Please let me emphasise that access to the respective JKIA resources by conducting site visits as well as access to key resources such as KAA’s management and IT systems might be also critical for the efficient and successful execution of the transaction,” Mr Mikosz wrote in a letter received by KAA on October 4.

PIC last week directed a suspension of the proposed merger, pending conclusion of its ongoing investigations into the proposed deal, which Mr Andersen said KAA did not initiate. The MPs froze the proposed merger on grounds that it would render the profitable aviation regulator, KAA, bankrupt. The parliamentary committee directed the Auditor-General to undertake a forensic audit on the transaction. Merger of the two entities is intended to hand the cash-strapped KQ a financial lifeline, but KAA board minutes exposed fears that the plan could end up bankrupting the regulator. Mr Andersen tabled the document which shows that the KQ boss requested the critical data from KAA in two batches.

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“Therefore, I would like to kindly request KAA to provide data and information as outlined in appendices to this letter.

“Due to the transaction’s urgency and utmost importance, we have divided requested documents into two groups,” Mr Mikosz wrote. The KQ boss asked Mr Andersen to make available the data and information to the airline after signing a confidentiality and non-disclosure agreement. The second set of data and information was to be provided during the due diligence phase.

“For purposes of implementing the transaction, KQ shall undertake a Due Diligence of JKIA followed by bilateral negotiations on the Privately Initiated Investment Proposal (PIIP),” said Mr Mikosz, who was following through a Cabinet decision made on May 29, 2018 that granted “in principle” the loss-making KQ and cash-rich KAA approvals to develop and subsequently engage in a framework that will lead to the optimisation of JKIA’s operations. “It has been proposed that KQ and KAA enter into an arrangement that will result in KQ operating, maintaining, developing, constructing, upgrading, modernising, financing and managing JKIA (the Transaction) based on the Public Private Partnership (PPP) model,” Mr Mikosz said in the letter to Mr Andersen.

But the KAA board questioned the mode of engagement with KQ. “The mandate to engage with KQ be on the basis of the letter by the principal secretary’s letter and not KQ’s PIIP,” the board said in minutes of its 295th meeting dated October 18, 2018.

Transport principal secretary Paul Maringa wrote to Mr Mikosz and Mr Andersen on June 19, 2018 communicating the decisions of the special Cabinet meeting where KQ and KAA were granted approval to enter into negotiations with a view to agreeing on a framework to restore Nairobi as the Civil Aviation Hub of choice in Africa thereby contributing to Kenya’s economic competitiveness, with aviation being ‘a corridor for development and technology.’

“A substantive memorandum should be submitted for consideration and approval once the framework is agreed upon,” Mr Maringa wrote in a joint letter to KQ and KAA chiefs.

The KAA board meeting that was chaired by Isaac Awuondo raised questions as to whether KAA could divert from KQ’s proposal in giving strategic direction but “the PS underscored that government’s policy is for merger to happen and the SPV (Special Purpose Vehicle) created.”

“It was noted that KQ has considered the proposed transaction from its own perspective as it had right of first advantage,” the board said in minutes dated November 12, 2018.

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