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State stirs changes at KQ board, demands control

BUSINESS
By Moses Michira | September 8th 2016

KLM could lose some seats on the board of Kenya Airways in a State-engineered coup aimed to restore the troubled airline to profitability.

Transport Cabinet Secretary James Macharia has promised that Kenya will wrestle control of the airline from the European giant, whose partnership with KQ is widely regarded as no longer feasible.

Already, one director, Vincent Rague, has stepped down and will not be offering himself for re-election in the upcoming Annual General Meeting on September 29.

Another agenda for the meeting is that existing shareholders will recapitalise the firm that has booked record losses in the last two financial years.

"We have very exciting candidates whom we want on the board of directors because it is time we took control of the airline," Mr Macharia said, promising to unveil the prospective members within the week.

KLM holds veto powers in the board of directors, including on the filling of the senior-most positions in management, a standing that could be invalidated in the upcoming AGM. Macharia's position on the control in the board and management is the first time the State has expressly revealed its intent on the operations of the airline.

"Our plan is to have a bigger role in the strategic and operational functions in KQ, which is a very strategic asset for us," he added in an interview with The Standard. Earlier, however, the Senate and the National Treasury had separately stated that the anticipated financial bailout of the airline by the State would only happen if the Government has absolute control.

Independent analysts have said that KQ needs fresh capital injection of about Sh100 billion to repair the tattered balance sheet which has seen shareholders' capital wiped out by accumulated losses.

It is unclear how much the State would be willing or even able to invest in the firm that has sustained losses for several years, even though there has been a firm commitment of fresh capital injection. The Kenyan government is the single largest shareholders in the firm with a 29.8 per cent stake, ahead of Royal Dutch KLM's 26.7 per cent.

Should the shareholders vote to bail out the airline to the tune of Sh100 billion, Kenya would need to invest nearly Sh30 billion – to retain its stake and avoid being diluted. Another key shareholder is the International Finance Corporation which has also demanded to have representation on the KQ board.

National Treasury Cabinet Secretary Henry Rotich told MPs in his budget speech last June that he had a plan to revive KQ and ensure its fortunes are turned around to get it back to profitability.

"We are working to ensure Kenya Airways turns around its financial position and is able to play its role in our economy especially as a key asset supporting our tourism and transport sectors," Mr Rotich said.

His ministry, had earlier in March, granted the airline Sh4 billion, before issuing a guarantee to enable it borrow Sh20 billion.

KQ is also a target for acquisition by Qatar Airways.

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