It remains to be seen how a government that was unable to guide a small carrier to profitability will fare in the face of cutthroat competition from Gulf carriers, Ethiopian Airlines and Rwandair.
Nairobi’s ambitions to being a global aviation and financial hub, Kenya’s tourism economy and other linkages such as jobs and tenders would irreparably suffer should Kenya Airways collapse.
In nationalising Kenya Airways while letting those who plundered it go scot free and without addressing the airlines cost structure, the government is setting a bad precedent.
The endorsement by Parliament of a two-year plan to nationalise Kenya Airways has raised more questions than answers on the future of the carrier. Apart from the airline being heavily indebted, its operations are costly and its ability to compete in the global aviation scene quite limited.
It, therefore, beggars questions that challenges which would be more effectively tackled by the private sector are being left to state bureaucrats. This brings a feeling of déjà vu for an entity whose privatisation in 1996 was a global showcase for a successful divestiture from an airline in Africa.
It came at a cost, with the government writing off about Sh70 billion in capital and unpaid taxes. It remains to be seen how a government that was unable to guide a small carrier to profitability will fare in the face of cutthroat competition from Gulf carriers (Qatar and Emirates), Ethiopian Airlines and Rwandair.
Despite strong state patronage, professional management of these firms has made them competitive and profitable. When the nationalisation of Kenya Airways was first broached in 2014, the airline’s leadership objected, arguing that state ownership would adversely affect its performance. They were on point, as the carrier made profit only in the 17 years of its privatisation until 2013.
The streak was disrupted by huge capital expenses on fleet modernisation and expansion that were not matched by revenue increases because of terrorism and questionable business decisions. The resulting debt, now totalling Sh75 billion, will be charged on taxpayers. Apart from the Sh29 billion owed to the Treasury, Sh30 billion is due to 11 local banks and another Sh10 billion to three foreign banks.
The rest of the debt will be owed to the local banks for unrealised gains with the nationalisation. That excludes the Sh20 billion that the government recently settled with the Africa Export Import bank on behalf of the carrier. Absorbing these exposures at […]
