Why Kenya Airways needs to rethink deal with KLM
SEE ALSO :NSE share index down by 9.56 pointsThe deal, it was hoped, would facilitate expansion of the national carrier and also return value to KLM. After the five-year initial period, the deal mutated into a 10-year strategic plan between KQ and KLM. The plan spelt out the routes the airlines would fly, the fleet size, type and the range to be covered. To align with the agreement, Kenya Airways had to revise its Memorandum and Articles of Association. Legal and aviation experts say this is the point at which KQ began the steady slide into technical insolvency. By the stroke of a pen, the Kenya Government and other shareholders lost all substantive commercial and administrative control of the national carrier to KLM. Economists and commercial law experts say the agreement as drafted is at absolute variance with what the joint venture agreement aimed to achieve. Specifically, the revision of the KQ memorandum and articles was effected by introducing a new clause 115 which reads in part: “If and for so long as the cooperation agreement shall remain in force, any resolutions relating to any of the following matters shall be deemed not to have been passed if any KLM Director (or his alternate) is against the proposed resolution.”
SEE ALSO :KQ bid to manage airport opposedIt is this amendment that has led economic experts to conclude the entire arrangement was outrageous while commercial law experts have called it a takeover. The agreement as it exists now gives KLM absolute control of any sale of shares by the Government of Kenya acting through the Permanent Secretary to the Treasury to a major international airline; any delegation by the directors of any of their powers to a committee of the board or to any manager; and the appointment or dismissal of the managing director or finance director of Kenya Airways. Other matters where KLM acquired absolute and unchecked control include disposal of any aircraft and any other variations in the size and composition of the company’s fleet. The Dutch airline also had to approve any cooperation agreement with an airline that is a major competitor of KLM, alteration of routes and commitment or expenditure on sales and marketing or distribution of Kenya Airway’s products and services. These restrictive resolutions were adopted in a shareholders’ meeting and a board forum where the tax payer was represented by at least two principal secretaries (Transport and National Treasury).
SEE ALSO :Ruto tells off MPs on Kenya Airways dealConsequently, the amendments were effected in September 2013. Legal commercial expert Mbugua Ng’ang’a described the move as one that technically auctioned Kenya Airways. “When one partner in a joint venture agreement enjoys a veto on all substantial commercial and administrative decisions and especially where that partner is also a competitor then that is a takeover, it cannot be an agreement. This so-called agreement technically rendered Kenya Airways a subsidiary of KLM. Plainly told, Kenya Airways was literally auctioned. Somebody here or a group of people belong to jail,” he said. Mr Mbugua further said the resolution points to professional negligence. “It is unbelievable that Kenyans were busy hoping for a better national carrier while others were busy auctioning it. The law is very clear on the role of board members,” he said. Economic expert Aly-Khan Satchu has described the agreement as outrageous.
Register to advertise your products & services on our classifieds website Digger.co.ke and enjoy one month subscription free of charge and 3 free ads on the Standard newspaper.