Inside Uhuru’s plan to rescue Kenya Airways

President Uhuru Kenyatta will have a key role in the management of the loss-making Kenya Airways in the proposed nationalization plan.

The roles are spelt out in the National Aviation Management Bill, 2020, which portends a major shake-up in the aviation industry when it becomes law.

The President will chair a powerful National Civil Aviation Council. The council is part of the proposals to make KQ a parastatal.

Uhuru is keen to implement his aviation agenda which is to ensure that Nairobi remains the gateway to Africa. The agenda is also intended to increase aviation revenue and create jobs.

The President’s idea is to grow earnings from the sector to Sh200 billion and double the passenger numbers to eight million in five years.

Cabinet Secretaries for Transport, Interior, National Treasury as well as the Attorney General, and Kenya Airforce Commander are the proposed members of the council.

The council will create policies relating to the aviation sector and also assess the country’s actual and potential civil aviation capabilities.

Further, the President will appoint the board chairperson of the proposed Kenya Aviation Corporation – the apex aviation body.

The AG, National Treasury and Transport CSs, corporation CEO, managing directors of Kenya Airways and Kenya Airports Authority and four independent non-executive appointees of the Transport CS will be members of the corporation board.

By the enactment of this legislation, the Kenya Airports Authority Act will be repealed, meaning KAA and KQ board members’ terms will lapse.

The National Assembly Transport Committee chaired by Pokot South MP David Pkosing – who mid-wifed the Bill, said there would be no job losses.

“There will be more flights, hence more ground handlers, more hotels, more crew and so on. Nobody is targeted to lose jobs in the new structure,” the MP told the Star Sunday.

The current arrangement provides for board directorship at one level. We will no longer have boards at KQ and KAA.”

This means that once signed, the Public Service Commission will recruit the personnel to join the new Kenya Airways.

“We intend to deliver the Bill by August. It sits well within the plan to revive the economy post Covid-19,” Pkosing said.

The board will provide oversight in the management of the corporation, as well as develop and oversee its strategy, and approve budget.

It will also approve JKIA user charges, determine salaries and wages of the national carrier staff and advise the Cabinet on development in the aviation sector.

The state-sponsored Bill published on June 8 states that the corporation will comprise of Kenya Airways, Kenya Airports Authority, and Aviation Investment Corporation.

Each of the ‘operating entities’ will be run on a daily basis by a managing director appointed by the board for a five-year term, renewable once.

The corporation – known as the group – will be run by a Chief Executive Officer. Its initial capital is proposed to be Sh7.5 billion (Sh7,482,345,174).

KAA’s initial capital is set at Sh66 billion while that of the Investment Corporation – a special purpose vehicle – will be Sh1 million divided into 50,000 ordinary shares.

According to the Bill tabled in Parliament on Thursday, managing directors of KQ, KAA, and Aviation Investment Corporation will report to the group CEO.

The corporation will run aviation training schools, handle maintenance and repairs, aircraft handling, flight catering, aviation medical services, tour and holiday management services.

“The CEO will hold office for four years and shall be eligible for re–appointment for one further term subject to satisfactory performance,” the Bill reads.

A corporation secretary will be appointed by the board to arrange the business of the board and committee meetings, but reporting to the CEO.

The new Kenya Airways will be wholly owned by the government after it acquires 100 per cent of the equity interest in Kenya Airways Plc.

“The registrar of companies will, on the vesting date, enter Kenya Airways into the register of companies and issue a certificate of registration noting its status as a state owned entity,” the Bill reads.

The Companies Registrar is also expected to register KAA and the Aviation Investment Corporation as freshly created entities.

There will also be established a Kenya Aviation Corporation Fund to be administered by the board, and presided over by the CEO.

The fund will receive passenger service charges, monies appropriated by Parliament, state grants and loans, donations, and surplus income earned by KQ, KAA, and AIC.

Kenya Airways will be a carrier of air passengers, cargo, mail, and goods in Kenya; and also undertake other businesses related to air transport.

It will also acquire, hire, sell, and lease aircraft and has been given powers to hold shares in any company or other body, borrow or lend money.

KAA will own, operate, and maintain aerodromes, construct, operate, and maintain the facilities.

Kenya Airways chairman Michael Joseph at a recent AGM presser said every airline is looking at ways of making its operations efficient for more jobs and tourism.

The board chairman allayed fears the nationalization has delayed, explaining that  it is a complex process.

“It is not just nationalisation but how we deal with minority shareholders, the bank shareholders. It is difficult to conclude without face to face meetings but the process is ongoing.”

Last June, MPs recommended that KQ be nationalized after the carrier proposed a company to take over the management of Jomo Kenyatta International Airport (JKIA).

‘Project Simba’ would have seen KAA lose control of the airport with proponents saying it would increase the airport’s traffic.

At the time, the Cabinet said the planned merger was part of the financial restructuring to save the airline from collapse.

MPs advised KAA against creating a private entity on grounds there was no way it would run a national airport.

The national carrier is facing turbulence, recording losses year in, year out despite over Sh100 billion in government bailouts. The situation has been made worse by  the coronavirus pandemic.

KQ has also over time had its loans restructured – with some written off.  It is yet to turn around its fortunes.

Former CEO Sebastian Mikosz once told the Star that the situation won’t change if the shareholding structure remains unchanged.

“Nationalization will create a sense of ownership since it will raise the country’s expectation and in exchange have players protect it as a key asset,” he said.

An expensive labour force of highly paid captains and crews has added to the KQ cash flow woes amid a costly tax regime.

KQ is funded by a consortium of banks holding shares as KQ Lenders Company, entities which charge the airline 11 per cent interest in dollars.

The banks hold 38.1 per cent shares in the company. The government has 48 per cent, Dutch airline  KLM 7.8 per cent, minority shareholders 2.8 per cent, and KQ employees 2.4 per cent.

In further proposals, Pkosing says the Kenya Civil Aviation Authority (KCAA) will report to the President Kenyatta-chaired aviation council.

Author: Alex

Alex is a Kenyan blogger writing on technology, fraud, social media and politics at Nairobi News Today.

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