State's takeover of KQ enters the homestretch

National Assembly Transport Committee Chairman David Pkosing. [Boniface Okendo,Standard]

The nationalisation process of the troubled national carrier, Kenya Airways (KQ), has reached the homestretch with the National Assembly and the government preparing to present a Bill to Parliament after recess.

Behind the scene is a steering committee mooted mid-last year to work on the financial status of the national carrier and fine-tune details of the cost and model ahead of its nationalisation.

The process is expected to take 21 months.

National Assembly Transport Committee chairman David Pkosing told Weekend Business that the Bill is ready and will be tabled in Parliament once lawmakers resume business.

“The Bill is set to legislate the complete takeover of the national carrier by the government so that we can revamp it. It will not only take it to past glory but grow it bigger,” said Pkosing.

Mr Pkosing said the legal team had proposed changes to the Bill that could see the creation of a college of aviation, putting the Kenya Airports Authority (KAA) and KQ under a holding company, alongside other laws.

He said the government will have to make eight legislations, allowing the State to implement the changes.

In the revival plan that was passed by the House last June, the holding company will bring together other players in the industry.

The House also passed the Pkosing report that proposed the creation of a Kenya Aviation Holding Group - a holding company modelled alongside the Ethiopian and Egyptian aviation industry.

The holding company would bring together institutes held by KQ, KAA, Jomo Kenyatta International Aviation (JKIA) and a centralised Aviation Services College.

The Pkosing report was a culmination of a public inquiry last year, following KQ’s botched bid to take up control of JKIA to boost its dwindling fortunes.

On November 2019, Transport PS Esther Koimett told the National Assembly that as a follow-up to the legislatures’ decision to nationalise KQ, the government plans to buy out Air France, KLM, local banks and more than 80,000 individual shareholders.

It would then delist the national carrier from the bourse. She has since moved to the Ministry of ICT in the same capacity.

Koimett had earlier said the technical expert was to be hired before Christmas. The government’s target was to close the deal by end of this year.

The airline’s former Chief Executive Sebastian Mikosz late last year urged the government to speed up the takeover to save the carrier from increased competition and collapse.

Uganda, Tanzania and Rwanda have started injecting cash into their airlines - threatening the survival of KQ which flies to 51 destinations globally, 43 of which are in Africa.

Last year, KQ declared a Sh5.9 billion net loss for the year ended December 2018, even though the total revenue for the year grew to Sh114.4 billion compared to Sh80.7 billion in 2017. Early last year, the National Assembly passed a government take over of the loss-making firm that is reeling under the burden botched expansion plan.

In 2018, the Cabinet gave nod to a deal where KQ would take over running of JKIA under a Privately-Initiated Investment Proposal to help raise its liquidity.

The deal raised an uproar among Kenyans with many questioning how a loss-making private firm would run a profitable government entity, whose annual collections stand at about Sh12 billion. Once Parliament passes the Bill and has it assented, the government will be obligated to pay off the 51.1 per cent ownership to have total control.

Currently, the government owns 48.9 per cent, 7.8 per cent by KLM, 38.1 per cent by a group of 10 local banks, while KQ employees and other Kenyan investors hold 5.2 per cent.

 Resistance from KAA

The separation of JKIA from KAA received assistance, with the agency noting that without the country’s main airport, the rest will be struggling to stay afloat.

Annually, KAA has been collecting Sh12 billion from JKIA alone. But the National Assembly Transport committee chair claimed that the resources from the aviation holding company and any revenue generated from such resources must be utilised for the mutual benefit and development of all its subsidiaries.

“The essence is to grow the visitor numbers from seven million to 30 million, and this growth will benefit all the agencies horizontally. Each organisation will have more than enough share,” said Pkosing, allaying fears that JKIA independence will hurt KAA financial health.

Other stringent measures that will be given to KQ include major tax exemptions and creation of a law to rid it of government red tape. Also, the reduction of KQ’s 4,000 workers was picked as one of the items to be considered.

“We want laws to allow KQ not to pay airport fees as well as for fuel and railway. They are some of the costs weighing down the airline and denying it a competitive edge.