Shareholders of Nairobi Securities Exchange-listed national carrier Kenya Airways #ticker:KQ are set for a buyout by the Treasury if Parliament’s proposal for nationalisation of the airline sails through.
In a report released Tuesday, Parliament has recommended the formation of an umbrella Aviation Holding Company to run Kenya’s aviation sector.
The National Assembly’s Transport Committee has recommended that the government establishes the holding company with four subsidiaries comprising the Kenya Airports Authority (KAA), Kenya Airways (KQ), the Jomo Kenyatta International Airport (JKIA) and a centralised Aviation Services College, which will run independently.
“The committee recommends that Kenya Airways be nationalised,” states the committee report. Nationalisation of Kenya Airways will require that the Treasury pays off about 80,000 shareholders who bought the airline’s stock at the NSE.
The State will also have to pay off debts in excess of Sh25 billion owed to commercial banks, which were converted into equity during restructuring of the carrier’s balance sheet.
The Treasury remains Kenya Airways’ biggest shareholder while strategic partner KLM comes third on the shareholders’ ranking after the banks.
The MPs have also proposed that the government undertakes a staff rationalisation with a view to retaining existing staff and harmonising the terms of service and remuneration under the Aviation Holding Company.
“Upon nationalisation of KQ, the government reviews the aircraft leasing agreements entered into by KQ with a view to renegotiating better terms on account of the consolidated balance sheet of the Aviation Holding Company, improved KQ cash flow and a lowered risk profile of Kenyan aviation assets. Any future leasing arrangements for aircraft must be cost-effective,” the report recommends.
The recommendations follows an inquiry into the proposed Kenya Airways’ Privately Initiated Investment Proposal (PIIP) to KAA.
The MPs said they considered the submissions made by the stakeholders and noted that the PIIP does not present a viable option for restoring Nairobi as the civil aviation hub of choice in Africa and treating KQ and JKIA as strategic national assets.
“In addition, the committee noted that taking into account KQ’s current financial status …the government and the people of Kenya stand to lose the most in the event the trend is left to continue, noting that KQ debtors enjoy a sovereign guarantee of Sh75 billion,” the report states.
KQ, as is known by its international code, submitted a PIIP to KAA in a document dated October 3, 2018 dubbed “Project Simba Public Private Partnership (PPP) for Jomo Kenyatta International Airport (JKIA)”.
In the PIIP document, KQ estimated that the aviation industry contributed $3.2 billion and supported 620,000 jobs in 2014 alone.
KQ proposed a takeover of the JKIA operations and management through a 30-year concession agreement.