Revival of KQ will be slow if airport deal fails, says Michael Joseph

Kenya Airways #ticker:KQ will still grow, albeit slowly, if the national carrier does not clinch the deal to run the Jomo Kenyatta International Airport (JKIA), the airline’s chairman, Michael Joseph, has said.

The airline, Mr Joseph said, has other strategies in place to spur its growth.

“We still have to grow and we shall do that whether the proposal (to run JKIA) works or not. We already have two other strategies that will push our growth,” said KQ chairman Michael Joseph in an interview yesterday.

The chairman did not, however, divulge the details of alternative plans for strategic reasons.

“We will grow much faster if the PPP plan works out. If it does not work out, we will still grow, but not as fast as we would have wanted,” he stated.

Mr Joseph’s comments are a departure from those of the airline’s chief executive, Sebastian Mikosz, who last week told a news conference that to reverse the fortunes of the airline, the government will have to push through the plan to have the carrier take over management of JKIA.

Mr Mikosz said if nothing changes, the carrier would, in a span of five years, diminish to the level of its low-cost subsidiary Jambojet and lose its prestigious tag of the Pride of Africa.

“There is actually no way KQ can be profitable in its current state. I don’t know how to do that,” Mr Mikosz said.

Mr Joseph told Shipping and Logistics that the proposed model allows the firm to work jointly with the Kenya Airports Authority (KAA) under the private partnership programme and that it is not a takeover or a merger of JKIA.

KQ is borrowing on the model of rival Ethiopian Airlines which runs Bole International Airport in what has been attributed to its success as the only profitable carrier in the region.

KQ says being allowed to manage JKIA will help them to remain relevant in the market at a time when carriers are witnessing increased competition.

The Kenya Airways has proposed the formation of a subsidiary to manage operations at the JKIA for a concession period of 30 years.

KQ’s plan, contained in its Privately Initiated Investment Proposal (PIIP), includes the creation of a special purpose vehicle (SPV) — a unit of a company that is shielded from the parent firm’s financial risk — to operate, maintain and develop JKIA.

Investment proposal

This comes at a time when the two-year term of Mr Mikosz, a Polish expatriate, is coming to an end in May this year. The government has been banking on him to return the loss making airline to profitability after years of losses.

Last October, the airline submitted a privately-initiated investment proposal to the Kenya Airports Authority (KAA), the entity that runs all airports and airstrips in Kenya, seeking a 30-year concession to manage and develop JKIA under agreed terms—including payment of an annual concession fee.

KQ has set the annual concession fee at $28 million in 2019, and wants to gradually increase it to $35 million in 2028.

Critics have, however, argued that there is no reason KAA should accept proposal that will deliver revenues way below the $66 million needed to run non-JKIA operations every year.

The PPP plan has been opposed by the aviation workers, a move that led to a serious industrial action that paralysed the activities at the facility early this month.

The strike involved ground staff, cargo operators and other support service workers who are members of the Kenya Aviation Workers Union (Kawu).

An estimated 5.89 million international travellers passed through JKIA in 11 months to the end of November last year, compared with 5.79 million passengers in the full year 2017.