The state turns back on KQ, airport merger offer

The government has backtracked plans to merge the national carrier, Kenya Airways, with the Kenya Airports Authority (KAA), succumbing to public outcry over the decision.

Transport Minister James Macharia said the government would explore various options to improve the fate of the airline and the country's aviation sector.

"Following the concerns expressed by the public, we are now studying other opinions on the achievement of the government's objectives to consolidate our aviation sector," he told the transport committee on Tuesday. of the National Assembly.

"Once an agreed option has been identified, we will submit it to Cabinet for approval, in accordance with its instructions (the Cabinet)," he added.

Kenya Airways, also known as KQ, had proposed the creation of a subsidiary to manage operations at Nairobi's Jomo Kenyatta International Airport (JKIA) for a 30-year concession period.

KQ's plan, contained in its private-initiative investment proposal (PIIP), includes the creation of a Special Purpose Vehicle (SPV) – a unit of a corporation immune to the financial risk of the parent company – to operate, maintain and develop JKIA.

Responding separately to committee members, KQ President Michael Joseph said the proposed PIIP was not a takeover that was wrongly perceived to be in the public domain.

"That's the option we chose at that time. We are open to other proposals, if only to make it work, "he said.

Mr. Joseph revealed that the Public-Private Partnerships Unit (PPP) of the National Treasury had not yet submitted its badessment of the merger proposal.

KQ chief executive Sebastian Mikosz told the committee that the planned merger would be the only way for the airline to develop and compete effectively.

"For the moment, we are not aware of other options because it is not our call. The partnership will generate more jobs, more connectivity and more contribution to GDP, "he said.

The documents submitted to Parliament by KAA Executive Director Johnny Andersen had shown that the board of directors of this authority was concerned about the private initiative investment project (PIIP) presented by KQ with the support of the Cabinet.

The KAA, which collects 7 billion shillings from Jomo Kenyatta International Airport (JKIA) each year, would collect 2.9 billion shillings if the KQ deal was concluded, the KAA board said in a statement. confidential report of a meeting convened to make a preliminary badessment of the agreement.

"A full risk badessment of the proposed transaction will be completed as part of the detailed due diligence process, but the Commission should take note … if the JKIA was granted, the agreement would deprive KAA of significant resources, given that the concession fee would not significantly cover operational costs. and the CAPEX costs of the remaining airports, airstrips and corporate headquarters, "says the minutes.

Board minutes showed that in KQ's financial model, annual concession royalties were set at $ 28 million (201 million shillings) in 2019, then $ 35 million ($ 20.6 billion). shillings) in 2028 and 60 million dollars .1 billion) in 2033, 15 years after the beginning of the concession.

"By comparison, KKA's non-JKIA 2018/2019 operations are expected to cost Shs.6.6 billion in recurring expenses, a shortfall of Shs 3.7 billion compared to concession fees. proposed 2.9 billion shillings.

The proposed concession fee is therefore insufficient to cover the operating costs of KAA's other facilities, "says the minutes of the board of directors signed by KAA President Isaac Awoundo and Katherine Kisila on November 12 2018.

"Currently, the JKIA accounts for nearly 83% of KAA revenues and 51% of recurring expenses," said the KAA board of directors.

Joseph said Tuesday that KQ would continue to grow, but at a slower pace, even if the merger contract failed.

"We have yet to grow and we will, whether the proposal works or not. We already have two other strategies that will spur our growth, "said Joseph at an interview last month, without specifying strategies for fear of disclosure to competitors.

"We will grow much faster if the PPP plan works, otherwise we will continue to grow, but not as fast as we would have liked," he added.

Meanwhile, KQ confirmed that its experienced pilots earned more than their counterparts from rival airlines.

Mikosz told the parliamentary committee that KQ's senior executives earned an average monthly salary of 1.6 million shillings, twice as much as the Ethiopian Airlines pilots. The airline has 400 pilots.