Africa: State lines up another bailout for loss-making Kenya Airways

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Taxpayers could soon be forced to foot the bill for another bailout of the loss-making national carrier Kenya Airways (KQ).

National Treasury Cabinet Secretary Ukur Yatani said the government is prepared to inject more funds into KQ as part of the ongoing restructuring of the struggling airline.

“Kenya Airways is critical to the country and for the national brand, and the government cannot afford to lose it,” said Yatanni at the launch of the 2019 Tourism Sector Report on Friday.

“We have a plan, and Treasury is currently looking for resources for KQ to ensure it does not collapse.”

The announcement comes less than a month after Kenya Airways issued another profit warning, indicating that its loss for the year to December 2019 would be lower by 25 per cent or more.

It also comes at a time when the airline is currently searching for a new chief executive after immediate former boss Sebastian Mikosz left last month, several months to the end of his term.

A State bailout of the national carrier in 2017 raised Kenya’s commercial debt to Sh725.7 billion.

Parliament at the time approved the Treasury’s guarantee of $750 million (about Sh77.3 billion at the then exchange rate) loans owed by the ailing airline even as MPs called for the head of those responsible for sinking the “Pride of Africa” into astronomical debt.

Parliament last year approved a proposal by the Transport Ministry for the creation of a new holding company merged from operations of key aviation entities, including the Kenya Airports Authority, KQ and the Jomo Kenyatta International Airport.

However, several commercial banks hold a 38 per cent stake in the airline as part of a debt-for-equity swap in 2017 after KQ defaulted on its obligations to creditors.

The deal has now come back to haunt the State, which will now have to buy out the commercial banks and up to 80,000 small shareholders as part of the reorganisation settlement.

At the same time, Parliament last year warned that taxpayers stand to lose as much as Sh75 billion in debt taken by the national carrier and guaranteed by the government.

CS Yatani said the government is in the process of developing the administrative and legislative structures to breathe new life into the national carrier.

By Frankline Sunday

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  • The ‘serial failure’ of KQ is a huge embarrassment for the country, the economy and the culture of Kenya – but, I believe, more importantly for the citizens and TAXPAYERS of Kenya – it is the equivalent to a drug addiction which the government ignores and continues to pay debilitating recovery costs.

    ‘National Treasury Cabinet Secretary Ukur Yatani said the government is prepared to inject more funds into KQ… ‘we have a plan, and Treasury is currently looking for resources for KQ to ensure it does not collapse’.

    Now…after the airline is hemorrhaging – AGAIN – and is on life support AGAIN…the government announces they have a plan – to prevent the company from collapse. There was no effort expended on developing an operational plan to actually run the airline on a daily basis – BUT – there is a plan to prevent a cessation of operations. I don’t believe there is a prudent plan for that either.

    The most recent CEO to occupy the ‘leather chair’ was a pretender who had NO operational plan, NO financial management plan, NO aircraft maintenance plan, NO organizational plan…and a critical lack of AIRLINE BUSINESS ACUMEN.

    Kenya deserves better. There is a strategy, a management approach, a financial management structure, an aircraft maintenance plan, a personnel plan, a ‘burdened cost reduction’ plan and a infusion of vision, enthusiasm, optimism, intestinal fortitude and confidence which can save KQ, properly ‘turn it around’, operate the airline for profit and EVEN grow the company. Without the senseless ‘bailouts’.

    Will the government of Kenya listen. Probably not. They haven’t previously.

    The global airline community, international aviation organizations, civil regulators and the international banking industry is not amused by the ‘on again’ / ‘off again’ operational health of KQ.

    I sit in my office and often shake my head and wonder…’what are those folks thinking’?

  • Thank you a bunch for sharing this with all folks you really recognize what you’re speaking about!

  • It occurred to me that most, if not all, of the readers of these posts are distracted from the ‘elephant in the room’ which is the staggering monetary amounts being lost, currently, and the amount written off in past decades. Solely, with the objective to make the financial failure(s) of KQ simple and easily understood, I offer the following:
    1. Since 1990, KQ has ‘lost’ slightly more than $4.8 BILLION (USD). That means money which has been misappropriated, embezzled, stolen, under the table pay-offs, penalties for late payments, payroll payments made to people ‘who do not exist’, payments to former employees who left the company but remained on the payroll…and the payment of personal of personal, household and travel expenses for executives (past and present).
    This amount had nothing to do with the day-to-day operation of the airline – just money used to maintain relationships with PEOPLE – who would / could jeopardize the secrecy of how the company is being mismanaged.

    2. The company has NEVER operated aircraft which have been ‘analytically’ matched to load factors, city-pairs and airport utilization. That means the airplanes have been too big, flown to destinations without a passenger count which could return a profit, the airplanes burned more fuel that allow the ‘air seat miles’ to pay for, the company paid more for airport handling, baggage handling, airport fees and concessions than the amount budgeted in order to make a profit.

    3. Because KQ is a ‘credit risk’ in the international financial community – the company was forced to pay PREMIUM prices for aircraft, aircraft parts. aircraft maintenance, aircraft fuel…AND…banking fees.
    KQ is being charged, and pays with ‘money they don’t have’, for the daily operation of the airline – amounts which are 40% HIGHER that other airlines pay.

    4. KQ has devolved into a business enterprise which is financially untrustworthy by the country, the passengers, by their own employees and by EVERYONE in the airline industry.

    The government of Kenya does NOT know how to manage an airline – they have grand visions and hopes – but NO BUSINESS PLAN. It is has been proven beyond any dispute that the government of Kenya cannot manage money – any amount of money. They know how to lose it, miscount it, squander it and cannot account for it.

    KQ should NEVER become a wholly owned, government, airline. That would create a perennial money losing operation that would eventually become a drain so large that EVEN the government could not rescue it – nor should they.

    There are investors – all over the globe – ready and willing to invest in a profitable airline. Professional, conservative, productive and RESPONSIBLE management is all that will be required to salvage the vast assets, which are overpriced and under utilized, and transform the company into a PROFIT CENTER which can service the debt load, provide a desirable ROI to the investors and eliminate the burden of taxpayer being forced to subsidize a failing and mismanaged government project.

    KQ needs to become a REAL business, with professional management, professional staff, a modern well maintained fleet of aircraft, revamped service routes and schedules – AND be free from debt.

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