Algeria, November 28, 2017

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Kenya Airways Can't Rise Soon Enough for Its Many Stakeholders

On Monday last week, the Cabinet Secretary for the Treasury, Henry Rotich, signed guarantees to support the financial restructuring of Kenya Airways.

Local banks were reluctantly roped in as new shareholders, and with the government and the banks now owning 87 per cent of the airline, the fortunes of 78,000 other shareholders of the airline were dramatically altered.

Mr Rotich said that this was not a bailout and that he expected the government would get a return on its investment, which was being made after an independent consultancy reported to the Cabinet that supporting the airline could lead to a viable future.

The government guarantees would enable the airline to trade on its own balance and improve its liquidity

Also present at the event was Cabinet Secretary for Transport and Infrastructure, James Macharia, who spoke of the importance of aviation to the economy as a gateway for tourism, horticulture, and investments.

He said the government would be adding a second runway at Jomo Kenyatta International Airport and rehabilitating existing terminals with a goal of making JKIA a regional hub that would see 12 million annual passengers, including travellers on direct flights from the USA that the government was in the final steps of securing.

PARTIAL PRIVATISATION

There was immediately some online discussion about if there really was a positive outcome for the taxpayer from investing more in the airline. After all, Kenyans have read about bailouts for other companies like Mumias Sugar, Pan Paper, Uchumi, coffee farmers and other sugar millers.

These are being done while there are dozens of new projects lined up for crucial ports, railways, and highways and other questionable ones, including stadiums and 60 ongoing dam projects.

But Mr Macharia said that the airline had been a similar position back in 1989 ,when bank loans were a feature on its books.

He said that was turned around and a few years later, the airline was contributing heavily as depositors to banks. It later underwent a partial privatisation in which KLM acquired 26 per cent and management control, and thousands of Kenyans bought shares in an award-winning restructuring of the airline that was brokered by the IFC

He said that all Kenyans should continue to support the airline and that the government was strictly enforcing a policy to only book government travel on Kenyan-registered aircraft.

ROUTE EXPANSION

At the recent 49th Annual General Assembly and Summit of the African Airlines Association (AFRAA), it was again stated that 80 per cent of airline passenger traffic in Africa is not done by African airlines.

This has led to more calls for African airlines to merge into one strong super airline entity that can grow beyond Africa's current 3 per cent of the global aviation market.

That is not likely to happen. Africa is still one of the least tapped and least-connected regions, in terms of aviation and logistics. Its countries that have airlines, including Ethiopia, Kenya, Rwanda, and to a lesser extent, Tanzania and Uganda, are all investing or plan to significantly support their airlines.

Rwandair, supported by the Rwandan government, is undertaking an airport, aircraft and route expansion program that includes plans to fly to the USA, Germany, and China and make Rwanda a visa-less, Singapore of Africa.

Ethiopian, the largest airline in Sub-Saharan Africa, was recently merged by the Ethiopia government into a new aviation holding group that includes airports, catering hotels, training, and tourism, for seamless passenger experiences that will make Addis Ababa a true aviation hub, like Dubai.

JOINT VENTURE

This week Addis Fortune reported that the airline was going to start construction of a 637-bedroom hotel at a cost of $91 million, its second hotel, and that on completion the airline will own 1,100 of the 8,000 hotel rooms in Addis.

The Kenya Airways financing announcement was followed a few days later by the release of the company's half-year results and notice of a new reconstituted board of directors with representative of the government, the banks and KLM, as well as plans to secure a new revenue-enhancing joint venture with Air France, who will resume flying to Nairobi in April 2018.

They showed an after-tax loss, which Kenyans hope will be the last, as finance costs should significantly reduce under the new balance sheet structure.

Also, the restructuring of shareholding will see 2.5 per cent of KQ shares reserved for airline employees, a far cry from when their long-serving CEO famously said he would rather buy livestock than shares in the airline.

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