In December 1995, KLM entered a Shareholders and Master Cooperation Agreement with Kenya Airways (KQ). This triggered an efficient and consistent expansion of an airline that was, until then, just one of the many small and inefficiently ran airlines in Africa.
The airline fulfilled Kenya’s sky dream for almost 20 years, with the Pride of Africa as its motto. It was a success story. This dream came to a sudden halt in 2012. From then KQ has been on a downward spiral of net losses. The reasons KQ gave for such a shortfall were not coherent…and it has been on a freefall since then.
It is a well-known principle of business that debts must be paid. The challenge lies in examining who should pay them. KQ is a ‘private venture’ in a lay man’s language, both profit and loses are born by the investors. Why should the tax payer bear the burden of a loss when he or she does not take part in the joys of a profit? Government bailouts of a private venture is a sort of contradiction, unless it is done to prevent a domino effect in the country’s economy.
The only bailable corporations are state corporations. Often, they are designed as non-for-profits whose aim is to satisfy the common good or fill a necessity gap. Thus, the bailout of such corporations or parastatals will not raise eyebrows.
QUICK FIX
This week, Parliament found a quick fix for Kenya Airways by giving a green light to the company’s nationalisation. The company has been making consistent loses; if we nationalise then we can bail it out. It seems a quick solution. But, is it good?
We have opted for the ‘easy way out’ though it is not the most intelligent one. What Parliament has done justifies shifting the burden from disgruntled investors to the tax payer, whose pockets will sink deeper and deeper?
The airline business is a risky and stressed one. Its procurement is complex and marred by shortcuts. It is always on edge. It demands instant decisions, permanent precision, huge contracts and large cash movements, where small margins result in massive gains or loses.
A good and efficient airline is strategic for the country. Our geographic location and network has greatly benefited from the growth of KQ. But running an airline is not necessarily a priority, and trying to revive a dilapidated venture is certainly not a must for the government.
Kenya […]