Kenya Airways goes kaput – Kenyan Business Feed

National Carrier Kenya Airways has suspended the trading of its shares at the Nairobi Securities Exchange (NSE) pending a government buyout.

“The company’s operational and corporate restructure and Government buy-out is now imminent following the publication of the National Management Aviation Bill, 2020, on 18th June 2020. “Consequently, the company has applied for suspension of trading in its shares and closure of its register until the resolution of its future is determined” said NSE.

The Capital Markets Authority (CMA) has approved the suspension, which will see KQ shareholders unable to buy or sell their shares during the given period of 3 months.

KQ has been on a decline for quite sometime (from 2011) but the events since 2017 is more pronounced and i’d like to revisit the chronology of events below:

In 2017, the cash strapped national carrier shocked Kenyans when they hired consultancy firm McKinsey and Company for Ksh. 2.3 billion. The money was paid in ten months.

The contract was ended after public uproar. However KQ clarified that the airline will use McKinsey’s services on a needs basis as opposed to the previous arrangement where the firm had permanently set up shop at the airline.

Before McKinsey, KQ had hired a US based financial consultancy firm Seabury to advise on its restructuring in 2015.

In the same year, the National Treasury loaned the struggling airline Ksh. 4.2 billion in an effort to surmount challenges brought about by challenges in the West African Market due to Ebola outbreak and increase in fuel prices. KQ had made a net loss of Ksh. 10.5 billion.

Kenya Airways has been cash strapped since its planed fleet expansion dubbed ‘project mawingu’ flopped. Project Mawingu, and other factors, sunk KQ into a Ksh. 25.7 billion loss in 2011.

The loss-making airline, which is 48.9 percent government-owned and 7.8 percent held by Air France-KLM, was privatised 24 years ago but sank into debt and losses in 2014.

online sources

KQ had ignored advise from audit firm Deloitte.

An Audit by PriceWaterHouseCoopers (PwC) 2011 – 2015 revealed that the airline’s Ksh. 25.7 billion loss was occasioned by a combination of factors accumulated over the years. One of those factors is the delay that happens between ordering and actual delivery of aircrafts. This is a common practice in aviation industry and takes about 4 years.

There was a planned takeover of the Jomo Kenyatta International Airport (JKIA) which has since been shelved.

There was also a planned merger of JKIA and Kenya Airports Authority (KAA) which was said to be occasioned by the loss of business at KQ.

Questions were raised after it was discovered that KQ owes local bank NCBA (then NIC and CBA) Sh5 billion.

Conflict of interest

Opponents of the merger saw this as a hostile takeover of their airport by the two banks controlled by the Kenyatta family.

During that time, the Parliamentary Investments Committee (PIC), raised alarms over conflict of interest in the deal. The chairperson of the board of KAA Mr. Isaac Awuondo is also the Chief Executive of first family-owned CBA bank (now NCBA).

Nandi Hills MP Alfred Keter raised the possible conflict of interest when he appeared before PIC as a friend of the committee.

“The two banks are in a merger negotiation and this raises the issue of conflict of interest. Probably, the chairman has realised KQ has no capacity to sort out the loans hence the merger,” Mr Keter told PIC.

KAA Act, Cap 395 prohibits ownership of airports by private entities.

That time, the speaker of the National Assembly Mr. Justin Muturi created confusion by stopping PIC from probing the deal further. Mr. Muturi instead ruled that the departmental Committee on Transport Public Works and Housing is the right team to handle the proposed deal as opposed to PIC.

KQ had hired Sebastian Mikosz as the turnaround Chief Executive (CEO) of the airline, but he failed and resigned in 2019, five months before the end of his contract.

The Polish’s work experience with another failed airline, Lot Airlines between 2009 – 2014 showed that it was a toll order for him.

---

Kenyan Business Feed is the top Kenyan Business Blog. We share news from Kenya and across the region. To contact us with any alert, please email us to [email protected]

---

Comments