Renationalization unlikely to fly Kenya Airways back to profit

NAIROBI (Reuters) – By taking back full control of Kenya Airways ( KQNA.NR ), lawmakers are banking on Kenya’s ability to replicate the profitable example of Ethiopia’s state-owned flag carrier Ethiopian Airlines. FILE PHOTO: Kenya Airways planes are seen parked at the Jomo Kenyatta International Airport near Nairobi, Kenya March 6, 2019. REUTERS/Thomas Mukoya/File Photo

The global precedents are not reassuring.

Government takeovers rarely transform loss-making airlines, analysts say. And Kenya Airways faces two major hurdles: competition from regional rivals and potential government interference.

Parliament voted last week to renationalize the loss-making airline, which is laboring under a mountain of debt and has had three changes of chief executive in the past five years as it struggles to compete with regional rivals.

Kenya plans to form an aviation holding company with a healthier balance sheet by combining the airline with a planned national aviation college and profit-making assets such as the main international airport and airports authority.

But some experts believe such a move may only compound the airline’s problems, opening it up to political interference without a clear strategic direction – although the government says it will allow the airline to be run like a private company.

“The future risk is government micro-management of the airline, which never works,” said airline consultant Nick Fadugba, chief executive of African Aviation Services, an organization that promotes development of the sector in Africa.

The Kenyan carrier, which is 48.9% government-owned and 7.8% held by Air France-KLM ( AIRF.PA ), was once held up as a model of successful privatization.

It sank into losses in 2014 after making costly aircraft purchases, which coincided with a slump in tourist and business travel to Kenya blamed on a spate of attacks by Somalia-based Islamist militants.

“They didn’t really expand with sufficient capital; that really put them into a bit of trouble,” said Eric Musau, head of research at Standard Investment Bank in Nairobi.

LONG-TERM STRATEGYDebt restructuring narrowed its pretax losses for last year to 7.59 billion shillings from 9.44 billion, but did not pull the company back into the black.The airline’s frequent change of CEO has hobbled its ability to form a long-term strategy. In May, current boss Sebastian Mikosz said he would leave at the end of the year, citing personal reasons.Kenyan Airways is operating in a tough market. The International Air Transport Association projects African airlines will post a combined $100 million loss in 2019, even as the global industry generates a […]

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