Kenya Airways State takeover frozen in legal hitch

The nationalisation of Kenya Airways #ticker:KQ (KQ) has suffered a setback after Parliament stalled a proposed law that seeks to return the national carrier to government ownership due to lack of public participation.

Members of Parliament stopped debate on the National Aviation Management Bill, 2020 because it lacks the input of Kenyans and other stakeholders in line with the Constitution.

The legal hitch looks set to further delay the plan to nationalise the loss-making Kenya Airways as regional competitors seeking to carve out market share pour cash into their national carriers.

Lawmakers rejected the bill last week, saying Parliament had received petitions from professional bodies like the Law Society of Kenya (LSK) who argued that the Transport Committee rejected their views.

The government had a target of completing the deal by end of October, hoping to emulate the success of State-owned Ethiopian Airlines, sub-Saharan Africa’s biggest airline.

Kenya Airways was privatised 24 years ago but sank into debt and losses in 2014 after a failed expansion drive, costly purchase of aircraft and a slump in travellers after a major terror attack.

In August, it saw its first-half loss nearly double from a year earlier to Sh14.36 billion, on months of suspended air travel due to Covid-19.

National Assembly Speaker Justin Muturi said that the public hearings on the Bill must take at least three days, arguing that “all Kenyans must be satisfied with the process to nationalise KQ.”

“I direct the Clerk to sit with the chair of the committee and agree on when another advertisement will be done inviting Kenyans and that the committee set aside three days to take their (Kenyans) views,” Mr Muturi said.

“Honourable members, if you recall the Merchant Shipping Act was successfully challenged and today the matter is pending before the Court of Appeal, every Kenyan should feel satisfied to avoid going a similar route.”

Parliament is, under Article 118 of the Constitution, compelled to invite the public in the process of changing laws, including holding public sittings, inviting submission of memoranda and expert views.

Countries like Tanzania and Rwanda are investing heavily in their national carriers, threatening Kenya Airways’ market share.

Ethiopian Airlines runs air transport assets, including airports and fuelling operations, under a single company. Funds from the profitable parts support the others.

This is the model Kenya is seeking to emulate, and in July tabled the National Aviation Management Bill to guide the nationalisation of the national carrier, which is 48.9 percent State-owned, 7.8 percent held by Air France-KLM, and 38 percent owned by local lenders.

Under the Bill, Kenya Airways will become one of three subsidiaries in an Aviation Holding Company. The others will be Kenya Airports Authority, which will operate all the country’s airports, including Jomo Kenyatta International Airport (JKIA) in Nairobi, under an investment arm dubbed Aviation Investment Corporation.

The State is keen on a long-term solution anchored in nationalisation of Kenya Airways, arguing that the carrier’s financial troubles went beyond the Covid-related woes.

Air-France KLM, which had the option of selling its stake to the government and staying on as a technical partner for the airline, has opted to exit.

Kenya has reached an agreement with Air-France KLM on the offer price, which will be a premium on the carrier’s prevailing trading price at the Nairobi bourse.

The same KLM offer price will be used to acquire the minority shareholders, who hold about 2.8 percent of the shares currently valued at Sh397 million.

A consortium of local lenders, who acquired 38 percent of the company’s equity during the 2017 restructuring, could be paid through government debt, possibly in 10-year Treasury bonds, said Ukur Yatani, the Treasury Cabinet Secretary.

The Nairobi Securities Exchange in July suspended trading of the airline’s shares for three months due to the transactions.