On Tuesday, while appearing before the National Assembly’s Transport committee, Transport Secretary James Macharia said the government had abandoned the plan and would instead explore alternative options of improving the fortunes of the airline and the country’s aviation sector.
“Following concerns that have been raised by the public, we are now exploring other options of delivering the objectives of the government to consolidate our aviation sector,” he said.
“Once an agreed option has been identified we will submit the same to the Cabinet for approval as directed by it (Cabinet),” he added.
Kenya Airways, also known as KQ, had proposed the formation of a subsidiary to manage operations at the Jomo Kenyatta International Airport (JKIA) for a concession period of 30 years.
KQ’s plan, contained in its Privately Initiated Investment Proposal (PIIP), includes the creation of a special purpose vehicle (SPV) — a unit of a company that is shielded from the parent firm’s financial risk — to operate, maintain and develop JKIA.
However, KAA, which collects about Sh 7 billion ($70 million) from Jomo Kenyatta International Airport (JKIA) annually was apprehensive about the merger.
According to documents tabled in Parliament earlier by KAA managing director Johnny Andersen, the authority’s board of directors was apprehensive about the Privately Initiated Investment Proposal (PIIP) tabled by KQ with the backing of the Cabinet.
Had the deal sailed through KAA would have taken a serious cut from its revenues from Sh 7 billion ($70 million) to Sh2.9 billion ($29 million) according to the confidential minutes of a meeting called to carry out a preliminary evaluation of the deal.
“While comprehensive risk assessment of the proposed transaction will be concluded as part of the detailed due diligence, the Board should take note… if JKIA is concessioned out, the arrangement will deprive KAA significant resources given that the concession fee will not significantly cover the operational and CAPEX costs of the remaining airports, airstrips and head office,” the minutes say.
The board minutes showed that in KQ’s financial model, annual concession fees had been set at an initial $28 million (Sh2.9 billion) in 2019, rising gradually to $35 million (Sh3.6 billion) in 2028 and peaking at $60 million (Sh6.1 billion) in 2033, 15 years into the concession term.
“In comparison, 2018/19 KAA’s non-JKIA operations are budgeted to cost Sh6.6 billion in recurrent expenditure, a Sh3.7 billion shortfall from the proposed concession fees of Sh2.9 billion. The proposed concession fee is therefore inadequate to cover the cost of running KAA’s other facilities,” state the board minutes signed by KAA chairman Isaac Awoundo and Katherine Kisila on November 12, 2018.
The proposed concession fee is therefore inadequate to cover the cost of running KAA’s other facilities,” state the board minutes signed by KAA chairman Isaac Awoundo and Katherine Kisila on November 12, 2018.
“Currently, JKIA accounts for nearly 83 per cent of KAA’s revenues and 51 of the recurrent expenditure,” said the KAA board.
The striking workers were unhappy with the Kenya Airways board of management, unfair staff hiring, and compensation and proposed takeover of the airport by Kenya Airways.
Kenya Aviation Workers Union (KAWU) Secretary-General Moses Ndiema was arrested and six Kenya Airways (KQ) workers were seriously injured during the protests.
The workers’ union had questioned the proposed merger of the loss-making carrier and KAA, which was to see KQ take over the operations of Nairobi’s Jomo Kenyatta International Airport.
In a statement released on March 4, the Kenya Aviation Workers Union (Kawu) said that “it is totally wrong, and even criminal, to imagine KQ taking over JKIA.”
“Kenya will lose billions of shillings in revenue, not to mention massive job losses that will ruin livelihoods,” said KAWU secretary-general Moses Ndiema.
In an earlier interview with a local paper, KQ chairman Michael Joseph had said the airline would still grow, albeit at a slower pace even if the merger deal collapsed.
“We still have to grow and we shall do that whether the proposal works or not. We already have two other strategies that will push our growth,” said Mr Joseph.
“We will grow much faster if the PPP plan works out, if it does not work out, we will still grow, but not as fast as we would have wanted,” he added.
KQ chief executive Sebastian Mikosz had earlier told the parliamentary committee that the intended merger would be the only way for the airline to grow and compete effectively.
“As per now, we are not privy to what the other options are since it is not our call. The partnership will result in more jobs, more connectivity and more contribution to the GDP,” he said.