Government wants to subdivide Kenya Airways

The new government under President William Ruto has shelved plans to sell the airline to cash-rich investors or to fully nationalize it. Instead, it favors splitting Kenya Airways up into self-managed passenger, cargo, and ground handling units. Although the scheme is new, the old problems remain.

Kenya Airways (IATA: KQ) has been making massive losses year after year since 2014. It avoided going bankrupt thanks to government bailouts. This year, too, the airline will end up in the red. For the first six months, it had reported losses of around 80 million euros (KES 9.8 billion), and this figure is expected to be significantly higher come 31DEC22. Management cited high oil prices and hedging losses as the reasons for the new deficit. However, that is only half of the truth. Notorious mismanagement and the selfishness of some board members have contributed to the airline's dire situation, claimed Onesmus Kipchumba Murkomen, designated Cabinet Secretary for transport, during a debate in parliament.

Split model
To navigate the carrier into a more prosperous future, newly elected President William Ruto advocates splitting it up into different units. These self-managed divisions would then be responsible for their own business policies, including profits and losses. This option, which includes launching a separate charter airline, is also supported by Cabinet Secretary Murkomen, who sees this as a viable alternative to sales plans. “We want Kenya Airways to remain majority privately owned,” the politician elaborated.

Sales plans are off the table
Prior to this decision, Kenya's finance minister nominee, Chris Kiptoo, had favored plans to sell the entire airline to a foreign investor. The official had proposed this last week at a meeting of the Departmental Committee on Finance and Planning, stating: “It is time to relook at the national carrier and ensure it continues operating without government support. We need to bring in a strategic investor.” His point: foreign aviation experts would revamp Kenya Airways and implement new business models, thus achieving the much-needed financial turnaround. In this context, he recalled the time when minority shareholder KLM was still heavily involved in management with many positive effects.
Currently, the government holds a 48.9% stake, banks possess 38%, and KLM has 7.8% but intends to sell its shares sooner rather than later. The difference is held by private investors.

KQ and SA want to partner
The operational splitting model favored by President Ruto is in line with plans to build a close alliance with South African Airways, which includes offering the market codeshare flights, and the exchange of technical and administrative knowhow (CFG reported). Also, jointly marketing both carrier’s cargo capacities is part of the plan.

Heiner Siegmund


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