How Kenya benefits from government bailout of KQ

A Kenya Airways plane at JKIA in Nairobi. FILE PHOTO | NMG Reports on the financial performance of Kenya Airways have elicited much debate in which the national carrier has been baptised as a loss-making entity.

On the surface it is a valid claim to baptise it so. But having followed the discussions around KQ for some time I have come to the conclusion that there is need for a deeper analysis of the airline’s performance.

Years ago KQ was performing well without State subsidies especially because of profitable routes but life is not always a straight line.

Many airlines across the world closed shop in the last one and a half years, including Jet Airways of India, Germania of Germany, Flybmi of the United Kingdom, Wow of Iceland, Small Planet of Poland and Avianca of Brazil. There are reports of other prominent airlines about to go bust.

According to IATA, airlines historically operate more at a loss than at a profit. Between 1990 and 1993, global airlines made a loss of Sh2.5 trillion. The losses hit Sh3 trillion between 2000 and 2005 of which a considerable share was covered by government bailouts.

High gravitational pulls in the aviation sector across the world often see airlines get state intervention through subsidies.

Though, how much is given to airlines is a closely guarded secret by most countries subsidies have assisted loss-making airlines and have been classified as restructuration aid for carriers that were formerly state-owned.

Subsidies in the US aviation sector have a long history. Most US airlines are only able to operate domestically because they have a subsidy of between Sh10,000 to Sh20,000 per passenger. In 2003, German LTU, a privately owned airline, benefited from Sh13.7 in state aid.

Spanish national carrier Iberia Airlines received sh85.7 billion in 1992 and Sh66.6 billion in 1996. Air France received Sh350 billion in 1994, Alitalia Sh170 billion in 1997 and Austrian Airlines Sh57.1 billion in 2009.

Government bailout of state and private airlines could be attributed to the fact that although airlines post accounting losses, they post economic profits to the countries they operate from.

Airlines contribute about Sh88 trillion, an equivalent of 2.4 per cent to global GDP. The air transport industry is one of the most efficient sectors per worker. It has an output of Sh6.5 million per worker per year, translating to about three and a half times the average across the world economy as a whole and exceeds […]

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