Kenya Airways Should Not Have Been Privatised

September 4, 2019 / Comments (1)

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Never in the history of African aviation had an airline been privatised until when the Kenya Airways was inadvertently made a specimen. This is how Kenya, a regional powerhouse, became a country regarded highly as a strategic nation but which does not fully own a national airline.

KQ was wholly owned by the State until April 1996 when the government made a conscious choice to float shares to the public having noted that the real problem behind its dismal performance was the State ownership structure.

As a result, for five consecutive years, the airline experienced a gradual deterioration in financial and operating performance while neither paying taxes nor dividends as a national airline. It had accumulated losses to the tune of Sh3 billion.

However, profitability of the airline improved after privatisation, with gross profit being recorded for the first five years. These ever-rising profits must have clouded the whole nation for far too long under the ‘Pride of Africa’ tag as regional policies were being introduced at a time when competitors were quietly licking wounds as they preyed and bayed for KQ’s blood.

Fortunately for competitors, in 2002, half a decade after privatisation of Kenya Airways, the open skies for Africa treaty (Yamoussoukro Decision) was signed into law, granting airlines a set of commercial aviation rights that allowed them to enter and land in other nations’ airspaces. The underlying implication from this new development was that the African aviation sector had been redesigned to give advantage to state owned African airlines while subtly maligning the privately owned like Kenya Airways.

This window of opportunity was enough for Ethiopia and Rwandan governments to propel their then wannabe airlines. Since then Ethiopian Airlines (ET), which was half the size of KQ in 2010, has outpaced KQ three-fold.

Rather than privatising KQ, stakeholders ought to have ensured that the airline was professionally run and managed. The advent of the open skies treaty would have made it a monopoly in the African aviation sector.

It took more than a decade for African states to adapt the open skies treaty but when it rolled out, it became extremely difficult for private airlines on the continent to succeed due to the now fashionable practice by governments to shield state owned airlines from both foreign and private competition through restrictive regulations and high taxes.

The biggest challenge of 21st century African diplomacy is that it takes place among multiple sites of authority, power, and influence that maligns the consistently reliable expert opinion of the private sector.

At the moment, the Kenya Airports Authority (KAA) charges KQ annual fees of up to Sh2.2 billion comprising of landing fees of over Sh1.6 billion, building and rent utilities of about Sh400 million and concession fees of Sh200 million, heavy cost of fuel distribution, maintenance and cost of services incurred in other airports notwithstanding.

KQ also pays KAA the Air Passenger Service Charge (APSC), which is dependent on the number of passengers departing from Kenya with the airline, to the tune of Sh4.3 billion yearly accounting for approximately 50 percent of JKIA’s total revenue from APSC. These charges alone amount to Sh6.5 billion.

The Kenyan parliament is right to consider exemptions of taxes borne by KQ and other Kenyan carriers that other operators into the country are not subjected to like corporate taxes, excise tax and import taxes.

Had the airline been exempted from paying these fees in 2018 alone, it would have converted over Sh6.5 billion into profit. These are clear signs that the airline will be more solid and profitable as a national enterprise than it is under the current ownership structure.

Though the airline has been steadily making headway towards profit recovery amidst unavoidable challenges like competition with state owned airlines that possess a big market in Africa, this partly demonstrates how the odds of thriving in the African continent are against privately owned African airlines.

Critical assessment and comparison of financial performance and position of Kenya Airways before and after privatisation gives a clear indication that the airline should not have been privatised.

While as a national airline, KQ had accumulated losses to the tune of Sh3 billion over a five-year period and was heavily indebted with its long-term loans rising to Sh3.9 billion. As a private airline however, it record a loss of Sh26 billion in 2016 which has been cut down to Sh7.5 billion.

Every decision to privatise a state owned enterprise makes an assumption that privatisation will generate sufficient funds and that the privatised enterprise will continue to operate efficiently after privatisation.

On the flip side, public enterprises are a deliberate choice by the public to allow the government to provide certain goods and services that the private sector cannot avail affordably and efficiently.

The writer is MP for Kajiado East and Committee member on Transport, Public Works and Housing.

Source:https://www.businessdailyafrica.com/analysis/ideas/4259414-5258094-lxa8dc/index.html

One Response to :
Kenya Airways Should Not Have Been Privatised

  1. Mutinda says:

    Good Article though a the end not every clear on how to salvage the situation especially given where you seat as MP & Parliamentary committee member. You should also have put your name to the article

    Overall good work – very informative!

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