Kenya Airways, South African Airways joint deal faces headwinds

The plan to have the national flag carriers of Kenya and South Africa implement a partnership to create a pan-African airline is being slowed by the airlines’ internal troubles.

Both Kenya Airways (KQ) and South African Airways (SAA) are riding on privatisation and new investors as a path back to profitability after several years of losses that have left them both heavily indebted.

But their journeys are facing headwinds including industrial actions and challenges of fleet management.

The government of Kenya, which controls 48.9 per cent of the state carrier, now mulls selling a controlling stake in KQ to a ‘foreign strategic investor’ in efforts to resume profitability after a series of bailouts from the state.

Chris Kiptoo, the nominee to the office of Principal Secretary of the National Treasury, told legislators during his vetting that a new equity investor will inject capital and offer management expertise to help the airline recuperate swiftly.

“It is time to relook the national carrier and ensure that it continues to operate without government support. We need to bring in a strategic investor,” Dr Kiptoo told a parliamentary committee vetting him Monday.



The fresh plan to revive KQ might also involve a restructuring, which could see the company split into different subsidiaries along its main business lines of cargo, passenger and handling, as the Cabinet Secretary for Roads and Transport, Kipchumba Murkomen had hinted during his vetting earlier.

This new plan comes after the government dropped support for intentions to nationalise the carrier and delist it from the Nairobi bourse, a plan that was approved by parliament in 2019 as a long-term solution to heal the carrier.

Murkomen said the state would not wish to surpass 50 per cent shareholding in KQ, but a restructuring would help cure the ‘mismanagement’ that resulted in the company’s consistent losses.

But even as the carrier plans to restructure, it is yet to recuperate from a recent four-day pilots’ strike that began on November 5 and costed it $9.8 million.

Delayed salaries

In a memo to staff, KQ’s chief people officer Tom Shivo said November salaries will be delayed as the revenue for the month is expected to slump following the strike.

In efforts to increase income, KQ had planned to increase flight frequencies in its routes and resume flights to some destinations like New York City during the forthcoming festive season.

This week, the carrier began direct flights between the Moi International Airport in Mombasa and Dubai in similar efforts to ramp up revenue streams.

South African Airways is also not getting any closer to profitability after its privatisation efforts were dealt a blow by the resignation of the top official in charge of the body set to buy 51 percent stake in the state carrier.

Gidon Novick, the CEO of Takatso, the consortium that was set up 18 months ago to purchase the majority shareholding in SAA, resigned Monday citing lack of information and transparency from the body’s largest shareholder – Harith General Partners.

CEO quits

According to a report by a South African newspaper, Novick said he couldn’t fulfil his role as the chief executive of the Takatso consortium and its board member because he was isolated from accessing crucial information about the SAA deal.

“We didn’t have a choice but to walk away. I can’t have a fiduciary responsibility in an environment of not knowing what is going on. The fundamental issue is the lack of information,” he told Daily Maverick, a South African publication.

Despite their internal woes, the two carriers are banking on their partnership to improve their financial base by cutting costs and increasing their available fleet through code share, and possibly lead to a new pan-African airline group by end of next year.

Currently, KQ has outstanding liabilities amounting to $2.15 billion according to latest financials released August while SAA’s total obligations currently stand at $1.49 billion, as of March 2018 financial reports.

Source:  The East African

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