Kenya Airways Could Be Partially Nationalised

There are moves afoot in Nairobi to partially nationalise the country’s flag carrier, Kenya Airways.

Reuters is reporting that the Chairman of Kenya Airways, Michael Joseph, said the airline will support a takeover by the Kenyan Government, if it is in the airline’s best financial and long term interests.

Kenya Airways Could Be Partially Nationalised
Kenya Airway’s at the gate in Paris. Photo: Abdallahh via Flickr

Kenya Airways has struggled in recent years to compete with the powerful Ethiopian Airlines and Emirates, both of whom have a significant presence in Kenya’s neighbourhood. Last year, Kenya Airways reported at USD$59 million full year loss. That followed a USD$258 million loss in 2016.

Both Emirates and Ethiopian operate as units of a state owned holding company, and the Kenya Airways board is proposing a similar model for the Nairobi based airline.

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The Kenyan Government currently owns 48.9% of the airline, 38.1% is owned by KQ Lenders Company (a consortium of 11 local banks) and Air France / KLM holds a 7.8% interest. The airline was formerly government owned, but privatised in 1995 after years of poor management and financial performance.

A few facts about Kenya Airways

Kenya Airways flies 32 aircraft to 51 destinations, the majority of them being on the African continent. Over 3,000,000 passengers fly the airline annually. Despite rumours it was considering exiting the partnership, Kenya Airways remains a member of the SkyTeam Alliance.

Kenya Airways Could Be Partially Nationalised
A Kenya Airways Boeing 787. Photo: Eric Salard via Flickr

Kenya Airways flies its fleet of Boeing 787-800, Boeing 737-800, and Embraer E190’s out of Nairobi’s Jomo Kenyatta International Airport (NBO). The airline has operated under the threat of liquidation for several years, hampering its efforts to grow and undermining confidence in the airline.

Why nationalise Kenya Airways ?

The rationale behind the proposed nationalisation is that it will enable Kenya Airways to grow and compete more successfully against competitors Ethiopian Airlines and Emirates.

Speaking to ch-aviation, Michael Joseph says Kenya Airways should be able to double its fleet over the next five years. The board sees growth as key to the airline’s long term prospects.

Kenya Airways made some bold moves in the last year in an effort to fuel growth, including starting the first direct flights between Nairobi and New York. But this route has struggled to attract passengers and is losing money. However, the airline plans to stick with it because it reckons it has long term value.

Failed airport takeover

This latest move follows an unsuccessful bid by Kenya Airways to take over Nairobi’s airport, in partnership with state-owned Kenya Airports Authority.

Kenya Airways Could Be Partially Nationalised
A Kenya Airways 787 at Nairobi Airport. Photo: Alan Wilson via Flickr

The Kenyan Government rejected that bid. The airport deal was important as it would have shored up the airline’s balance sheet.

With the airline open to the idea of partial or full nationalisation, the Kenyan Government is also largely on board. Kenya’s Secretary of State for Transport, Esther Koimett, told a Kenyan Parliamentary Committee earlier this year that full state ownership was a possibility.

Debt held by the airline seems to be the primary immediate barrier to nationalisation.

The idea of partial or full nationalisation is not supported by many minority shareholders, but the Kenyan Government and Kenya Airways appear to be in the box seat. Despite the recent 737 MAX crash, the success of neighbour Ethiopian Airlines illustrates that African airlines can grow and prosper under quasi government control.

It’s a model Kenyan Airways would like to emulate.

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kyalo

The main problem with KQ is their pricing. Their prices are so high compared to ET/EK. Unless they work on their tickets am not sure they can convince passenger to use them even with their hospitality and good services.

Adam Simmons

I would argue that ET prospers in spite of government ownership. Management’s only remit seems to be to make money (i.e. little political meddling), which is the key to success.

Anton Schiere

But what does government ownership practically mean? There is no clear answer because it’s a spectrum of possibilities. On the left side a government plumbing money into the airline as much they need, for low cost funding their growth and smoothing out deficits. On the right side a share holding government strictly acting as an investor, keen on revenues on its investment. In daily practice it’ll be somewhere left or right of the middle on the width of the scale, presumably always more on the left side. In EU such left sided State support is forbidden. Alitalia with her soft… Read more »