Kenya Airways rescue plan faces headwind

Sunday March 3 2019

Kenya Airways plane JKIA

Kenya Airways planes parked at the Jomo Kenyatta International Airport, Nairobi. The government wants to merge the national carrier and airport agency to turn around fortunes. PHOTO | REUTERS 

By ALLAN OLINGO
More by this Author

The Kenya government’s plan to rescue its national carrier is facing headwinds, forcing President Uhuru Kenyatta to personally intervene to save the proposal.

Authorities closed the week preparing for a final push to the proposed merger between Kenya Airways and the agency that manages the country’s airports — the Kenya Airports Authority.

Political temperatures intensified Thursday after National Assembly Speaker Justin Muturi stopped a key parliamentary committee, which had recommended suspension of the merger, and asked another dominated by the ruling Jubilee party MPs to handle it.

President Uhuru Kenyatta’s chief of staff Nzioka Waita told The EastAfrican that there will be no going back on the deal, which is critical to saving Kenya Airways from total collapse and repositioning Nairobi’s Jomo Kenyatta International Airport as a regional aviation hub.

“The position of the Cabinet is that our aviation sector must be viewed as a strategic economic growth instrument — one that is critical to the expansion of tourism and attraction of foreign investment,” said Mr Waita.

Conflict of interest

Opposition to the merger plan is partly centred on what many see as a possible conflict of interest arising from its association with President Uhuru Kenyatta’s family business.

Kenya Airways owes Commercial Bank of Africa, which is majority owned by the Kenyatta family and has recently struck a merger deal with NIC Bank, more than Ksh4 billion ($40m). Critics have dismissed the proposed takeover of JKIA as “a grand debt recovery plan.”

It has not helped that President Kenyatta recently appointed Isaac Awuondo, the CBA group chief executive, to chair the Kenya Airports Authority board of directors.

State House last June crafted the merger plan that seeks to have Kenya Airways take over the management of key airports such as Nairobi’s Jomo Kenyatta as it refashions itself to match rivals, among them Ethiopian Airlines and Emirates Group that have relied on government support to expand their reach.

“The Cabinet endorsed the plan after the Ministry of Transport submitted a white paper showing that Kenya’s aviation sector is rapidly losing status and has fallen far behind rivals in rankings,” Mr Waita said, adding that President Kenyatta had personally taken over and is spearheading the plan.

Rearrangements

State House said its push for the merger is informed by the understanding that Kenya’s aviation infrastructure needs urgent repositioning to withstand stiff competition from Ethiopia and Rwanda, which is building a new airport at Bugesera and is working on a partnership deal with a leading African airline.

Ethiopian Airlines in January opened new 373-rooms Skylight Hotel in Addis, and a new passenger terminal as it continues its quest to become Eastern Africa’s aviation hub.

“While Addis Ababa Airport took over from Dubai as the largest air transport hub between Africa and the rest of the world, this grand terminal building is further evidence of the positioning of Bole Airport as one of the largest and most convenient global aviation hubs,” Tewolde GebreMariam, the group chief executive officer of Ethiopian Airlines said.

This is the stark reality Nairobi’s Jomo Kenyatta International Airport is facing. Top Kenya government officials believe the aviation sector needs “agile rearrangements” to withstand competition.

Mr Waita said opponents of the merger have not grasped the ongoing erosion of Kenya’s position as an economic powerhouse in East and Central Africa and the critical role that Jomo Kenyatta airport plays in it.

A White Paper prepared by Kenya’s Transport Ministry showed that the country’s aviation sector has been in a steady decline that is partly driven by Kenya Airways’ troubles and JKIA’s loss of business to upcoming airports.

“JKIA’s competitors, Ethiopia and Rwanda, have been adjusting faster to the changing aviation dynamics riding on key decisions made by the respective governments to anchor aviation as part of the strategic economic growth assets. That is what this decision is all about,” Mr Waita said.

Currently, the Kenyan government doesn’t finance Kenya Airways and the Kenya Airports Authority whose operations remain independent. Nairobi’s JKIA is KAA’s single largest revenue source that serves over 40 passenger airlines and 25 cargo airlines making it East Africa’s busiest airport.

Kenya Airways wants to form a special purpose vehicle (SPV) that will operate, manage and develop JKIA for a period of 30 years.

“The Cabinet and the president expect the merger to generate the best synergy between KQ and KAA, and restore Nairobi as the region’s and continent’s aviation powerhouse. That can only happen through upgrade infrastructure at JKIA and improvement in Kenya Airways operations,” Mr Waita said.

JKIA is Kenya’s only profitable airport and accounts for more than 50 per cent of KAA’s revenues. These are the funds the merger is targeting to support the repositioning of Nairobi as a hub.

Parliaments Public Investment Committee (PIC) on Wednesday warned that Kenya Airways’ planned takeover of JKIA would deprive KAA of significant resources to develop the country’s aviation sector as the concession fee will not be enough to cover the operational costs of the remaining airports.

The Kenya Airways financial model set out in the PIIP has set the annual concession fee at $29 million for 2019, rising gradually to $36 million and peaking at $61 million in 2033.

In comparison, KAA’s non-JKIA operations in the 2019 financial year will cost $66 million, leaving a shortfall of $37 million from the concession fee.

Advertisement