Twenty-five years after privatization, Kenya Airways looks like becoming majority government-owned again. The Kenyan Government, which has always maintained a significant stake in the airline, is moving to retake full control of Kenya Airways. But it’s a move not everyone is happy about.
As it stands, the Kenyan Government owns nearly half of the airline already. Air France-KLM owns a 7.76% stake, and the government plans to buy that. In addition, lenders who swapped debt for equity in Kenya Airlines sit on the government’s radar as sellers.
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Kenya Airways faces headwinds in a tough year
The Nairobi-based airline has big ambitions. But Kenya Airlines reported a US$194 million loss in the six months to June 30. That’s triple what the airline lost in the same six months last year.
Embattled CEO, Allan Kilavuka, says Kenya Airways needs a $500 million bailout to keep flying. He favors nationalizing the airline and joining the Kenya Airports Authority under a single holding entity. Kenya Airways is the largest carrier at Nairobi’s main airport and generates over half its revenue. The fate of the airline and the airport are closely linked. Mr Kilavuka wants to emulate what Ethiopia has done with Ethiopian Airlines and its airports.
“If we don’t restructure the airline, and take the airline as is into this organization, then we are doing a disservice to the taxpayer,” Mr Kilavuka is reported saying in Bloomberg.
Lawyers group criticizes Kenya Airways nationalization bill
The Kenyan Government is attempting to push through National Aviation Management Bill. That bill would allow it to take full control of Kenya Airlines and Nairobi’s Jomo Kenyatta International Airport and combine them under a common holding entity.
But not everybody is on board. The Law Society of Kenya has criticized the proposed bill. They have raised several concerns, including labor, competition, and inefficiency issues. The Law Society wants the bill rejected and a revised version subjected to tougher scrutiny.
But the Law Society might be swimming against the tide here. There’s a big push to get Kenya Airways back on track. Nationalizing the airline is one part of the bigger strategy.
Nationalization just one step in rescuing Kenya Airways
The airline was in strife before 2020, but this year has brought underlying issues at Kenya Airways to the public’s attention. It’s also forced the airline to make some hard decisions.
Passenger numbers at Kenya Airways for the first half of 2020 were down 56% to 1.1 million. The airline thinks it will take four years for passenger traffic to recover to 2019 levels. Kenya Airways temporarily grounded all flights earlier this year. But domestic services resumed in mid-July, and international services restarted in early August.
Against this backdrop and in addition to nationalization, Kenya Airways is laying off employees, downsizing their networks, asking people to take pay cuts, and sending planes back to lessors.
Kenya Airways has 34 planes, Allan Kilavuka thinks that’s about ten too many. He’s in talks with lessors to send back some planes, rework terms on others, and convert some passenger aircraft to freighters.
“I am confident that these discussions will bear fruit in the next six weeks,” said Mr Kilavuka.
Over 600 employees have lost their jobs at the airline already. Talks are underway with unions to minimize further job cuts. On the table are wage cuts and deferral of payments.
Kenya Airways insiders say the nationalization of the airline should wrap up by early 2021.