Transport Secretary James Macharia said the government would explore alternative options of improving the fortunes of the airline and the country’s aviation sector.
KQ chairman Michael Joseph said the proposed PIIP did not amount to a takeover as wrongly perceived in the public domain.
Mr Joseph revealed that the Public-Private-Partnership (PPP) unit at the National Treasury was yet to present its assessment of the merger proposal.
The government has backtracked on plans to merge the national carrier, Kenya Airways, with the Kenya Airports Authority (KAA), succumbing to public outcry over the move.
Transport Secretary James Macharia said the government would explore alternative options of improving the fortunes of the airline and the country’s aviation sector.
“Following concerns that have been raised by the public, we are now exploring other opinions of delivering the objectives of the government to consolidate our aviation sector,” he said Tuesday when he appeared before the National Assembly’s Transport committee.
“Once an agreed option has been identified we will submit the same to the Cabinet for approval as directed by it (Cabinet),” he added.
Kenya Airways, also known as KQ, had proposed the formation of a subsidiary to manage operations at the Jomo Kenyatta International Airport (JKIA) in Nairobi for a concession period of 30 years.
KQ’s plan, contained in its Privately Initiated Investment Proposal (PIIP), includes the creation 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.
Wrong perception
Responding to committee members separately, KQ chairman Michael Joseph said the proposed PIIP did not amount to a takeover as wrongly perceived in the public domain.
“This is the option we chose at that particular time. We are open to other propositions if only to make this work,” he said.
Mr Joseph revealed that the Public-Private-Partnership (PPP) unit at the National Treasury was yet to present its assessment of the merger proposal.
KQ chief executive Sebastian Mikosz told the parliamentary committee that the intended merger would be the only way for the airline to grow and compete effectively.
“As per now we are not privy to what the other options are since it is not our call. The partnership will result to more jobs, more connectivity and more contribution to the GDP,” he said.
Documents tabled in Parliament earlier by KAA managing director Johnny Andersen had showed that the authority’s board of directors was apprehensive about the Privately Initiated Investment Proposal (PIIP) tabled by KQ with the backing of the Cabinet.
KAA, which collects Sh7 billion from Jomo Kenyatta International Airport (JKIA) annually, would collect Sh2.9 billion if the KQ deal sailed through, the KAA board said in confidential minutes of a meeting called to carry out a preliminary evaluation of the deal.
“While comprehensive risk assessment of the proposed transaction will be concluded as part of the detailed due diligence, the Board should take note… if JKIA is concessioned out, the arrangement will deprive KAA significant resources given that the concession fee will not significantly cover the operational and CAPEX costs of the remaining airports, airstrips and head office,” the minutes say.
The board minutes showed that in KQ’s financial model, annual concession fees had been set at an initial $28 million (Sh2.9 billion) in 2019, rising gradually to $35 million (Sh3.6 billion) in 2028 and peaking at $60 million (Sh6.1 billion) in 2033, 15 years into the concession term.
“In comparison, 2018/19 KAA’s non-JKIA operations are budgeted to cost Sh6.6 billion in recurrent expenditure, a Sh3.7 billion shortfall from the proposed concession fees of Sh2.9 billion.
Inadequate fee
The proposed concession fee is therefore inadequate to cover the cost of running KAA’s other facilities,” state the board minutes signed by KAA chairman Isaac Awoundo and Katherine Kisila on November 12, 2018.
“Currently, JKIA accounts for nearly 83 percent of KAA’s revenues and 51 percent of the recurrent expenditure,” said the KAA board.
Mr Joseph said Tuesday that KQ would still grow, albeit at a slower pace even if the merger deal collapsed.
“We still have to grow and we shall do that whether the proposal works or not. We already have two other strategies that will push our growth,” said Mr Joseph in an interview last month, without naming the strategies for fear of disclosing to competitors.
“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 added.
Meanwhile KQ, confirmed that its senior pilots earned more than their counterparts in rival airlines.
Mr Mikosz told the parliamentary committee that senior KQ staff in rank of captain earned an average monthly salary of Sh1.6 million, double what pilots of Ethiopian Airlines earn per month. The airline has 400 pilots.
