Air France-KLM Group downgrades stake in KQ

Saturday June 01 2024
Kenya Airways planes at JKIA

Kenya Airways planes on the taxi bay at Jomo Kenyatta International Airport in Nairobi, Kenya. PHOTO | NMG


Air France-KLM Group has downgraded its investment in Kenya Airways to a “financial asset” that could be sold any time when the need arises.

“The Group’s stake in Kenya Airways Ltd is 7.76 percent as at December 31, 2023,” it said in its 2023 annual report.

“The Group has no significant influence on Kenya Airways and, due to its strategic intention, it is regarded as a financial asset at fair value through other comprehensive income under IFRS 9.”

Air France-KLM is implementing a restructuring plan that includes reassessment of its growth plan to become more sustainable, restore its performance and competitiveness, improve cost management and shore up its revenues.

Its investment in the Kenyan carrier has significantly been diluted from a controlling stake of 26.7 percent to 7.76 percent after the government and a group of local banks converted their debts into equity as part of a financial restructuring plan to rescue the airline from insolvency in 2017.

Read: Treasury: Kenya has paid $109m of KQ debt


Economists says the Dutch Airline’s latest policy shift on its shareholding in KQ sets a fertile ground for divestment if the board feels that holding onto the shares is not in line with their investment strategy.

“The fair value of an asset is what is worth in the current market. What KLM is saying is that its stake in KQ is of limited significance from a strategic perspective and only serves the role of a financial asset which may be transacted in the open market, should they choose to do so,” says Ken Gichinga, Chief Economist at Mentoria Economics.

“Since they have no significant influence on Kenya Airways, their stake in KQ is that of a mere financial asset, which can be readily transacted in the open market, should that be the strategic direction they wish to pursue.”

KLM acquired 26.7 percent stake in KQ in 1995 becoming the longest strategic foreign investor in KQ for close to three decades. The deal offered KLM seats on the KQ board, the right to appoint certain executives such as the Chief Finance Officer and act as the technical partner for the national carrier.

But the airline has since lost its influence on the operations of KQ due to its minimal stake of 7.76 percent.

Melodie Gatuguta, an associate research analyst at Standard Investment Bank (SIB), said KLM considers this stake a financial asset, which means they view it primarily as an asset rather than a means to influence KQ’s decision.

Read: Troubled Kenya Airways defaults on $841m loan

“Regarding the stake as a financial asset suggests that KLM’s primary goal is to earn returns from its investments in KQ rather than actively participate in its management or operations. This could mean that KLM is not actively involved in KQ’s strategic decisions and may consider divesting its stake in the future if it aligns with their investment strategy. However, it doesn’t necessarily imply an immediate exit,” Ms Gatuguta said.

Debate, however, continues as to whether Air France-KLM will sell its stake in KQ. The Group had expressed its desire to exit KQ when the Kenya government considere nationalising the airline in 2020 and 2021.

The bill on the nationalisation of the Kenya Airways, the National Aviation Management Bill,is still pending in parliament. It proposed to create an aviation holding company called Kenya Aviation Corporation (KAC) consisting of four subsidiaries — Kenya Airways, Jomo Kenyatta International Airport (JKIA), an aviation college and the Kenya Airports Authority (KAA)operating all other airports.

National Treasury Principal Secretary Chris Kiptoo told parliament during his vetting for the position in 2022 that the government would push for a fresh equity investor, who would inject capital and offer management expertise in the next phase of restructuring.

The government and the 11 banks converted part of their debt amounting to $265 million and $167.24 million respectively into equity as part of the restructuring plan in 2017.

Its stock was suspended from trading in July 2020 to enable it to complete its operational and corporate restructuring process.