What you need to know:
- There will be questions on why the government watched as the 44-year-old company was flown into the red.
- The airline business is going to be tricky, especially with the Covid-19 pandemic.
Just before he left the country before the end of his contract, I had some candid talk with former Kenya Airways chief executive Sebastian Mikosz on what was ailing the airline. It was not an interview per se, but a brain-picking exercise.
As we took tea adjacent to the New Stanley swimming pool on a lazy Friday afternoon, I could feel his intense frustrations. Mikosz was a man who had failed a dowry negotiation.
The Pole had replaced Mbuvi Ngunze in May 2017 in the hope that he could turn around the loss-making national carrier. He had told the Kenya Airways Board that he would do it. Now, he was walking away — a tail-between-the-legs departure.
It was my second interview with a Kenya Airways boss. Just before Ngunze was shown the door, I had a “gotcha” interview with him at his office together with my boss Mutuma Mathiu, who had accompanied me, or vice versa — just to make sure I kept my questions at diplomatic level. Months later, Ngunze was out.
As the National Treasury now wants to rescue the airline from possible death, there will be questions on why the government watched as the 44-year-old company was flown into the red while its competitors made astronomical profits.
The airline business is going to be tricky, especially with the Covid-19 pandemic. And there is a reason the government should get back into this business and make no apologies. It is the correct thing to do.
Over the years, KQ’s management has made rather silly mistakes, and policy makers topped it all up with blunders. Thus, as it flew — at times blindly — KQ was first a victim of a disastrous shareholding before it entered into a bad marriage with Dutch carrier KLM.
When it was wholly-owned by the government after the collapse of East African Airways in 1977, Kenya Airways became the dumping ground of inept workers and civil servants seconded from the then Department of Aerodrome.
By 1988, the airline had 11 planes and a workforce of — wait for it — 4,000! It had a nagging problem with cumulative debts and losses. More so, it was irregularly audited. And when that was done, the reports were never tabled in Parliament.
But every financial year, Treasury would set aside money for KQ — which was not regarded a profit-making business. That was unlike Ethiopian Airlines, which was allowed by the Derg military junta to run commercially to an extent that the Christian Science Monitor once hailed it as a “capitalist success in Marxist Ethiopia”.
Kenya Airways became the most abused parastatal in the country. Its aircraft could be commandeered by State House — at times for a week — and flown to any destination President Daniel arap Moi wanted. That should never happen, again, unless we have not learnt the lessons.
The airline was supposed to have a fresh start in 1995 when the government, unable to give any more bailouts, agreed to sell shares to strategic partners and the public. To succeed in the Initial Public Offer (IPO), the government assumed the KQ debt and converted it to equity as 235.4 million ordinary shares priced at Sh11.25 per share were floated.
It was surprising that Kenya Airways attracted many investors, with the domestic tranche oversubscribed by 82 per cent and the foreign one by 128 per cent.
The deal with KLM was wrought with problems and insiders believe the Dutch company took advantage of the shareholding to cripple the growth of KQ. While Kenya Airways’ regional and domestic operations were to be structured to feed KLM and KQ’s intercontinental operations with a provision of seamless connectivity, that did not happen.
KQ abandoned some European routes where KLM was strong, but the Dutch firm did not let go of the African routes served by KQ. It continued flights to Lilongwe, Dar es Salaam and several other routes.
Nobody seemed to have an answer why KLM was selling more out-of-East-Africa tickets than Kenya Airways. It was suspected that KLM was not making any efforts to sell KQ tickets while KQ was selling both.
Thus KLM was raking in more revenue from Eastern Africa than the local carrier.
With Moi’s exit, Kenya Airways was miraculously turned around by Titus Naikuni, the man who had made a name running Magadi Soda Company, and who was appointed in 2003 to run the then loss-making entity.
In 2007, Kenya Airways made a profit of Sh4.1 billion, and some Sh3.9 billion the following year. After a bad hedge in 2009, the company made a staggering loss of Sh4 billion. And then a series of internal blunders saw a nosedive in profits. It never recovered. And that is why the government is walking back to save the airline.
In 2011, and with a lot of fanfare, Kenya Airways came up with a 10-year strategy known as Project Mawingu. It wanted to take on its competitors and turn Nairobi into a hub for flights from the East. The results of the plan are yet to be seen.
Series of blunders
But why was Ethiopian Airlines making money? “For every pilot we hired, Ethiopia could recruit two with the same budget,” Mikosz told me.
In a series of blunders, KQ dropped some profitable routes. It is believed KLM and competitors took that space, and it did not take long before those competitors began poaching the best pilots and engineers from the airline. The cargo business was taken over by Ethiopian Airlines.
While Ethiopia protected its airline from competitors, Kenya had opened is space. The only airline that was committed to the growth of the Nairobi hub was not under protection. With taxes charged on every ticket, Jomo Kenyatta was regarded by airlines as one of the most expensive international airport on the globe.
More so, the airline was not earning profit from the airport business, unlike its competitors. Qatar Airways, for instance, runs the Qatar Duty-Free and is the licensed distributor of wines and spirits.
In Kenya, the duty-free shops are owned by politicians while the Kenya Airports Authority (KAA) does not want to let go of some services. Tenants pay a fraction of what they are supposed to since getting space has been a political issue.
There was a time the shops had been given to Kamlesh Pattni’s World Duty-Free Ltd. When Pattni was kicked out, he was awarded Sh8.5 billion as compensation through arbitration chaired by Ghanaian judge Edward Torgbor.
That was overturned by the High Court, which ruled that the award was based on an agreement between the government, and that Pattni had procured that agreement through bribery and corruption.
“JKIA is like a supermarket with a runway,” Mikosz told me. “We don’t have an airport like the one in Abidjan.”
Real pride of Africa
He lamented that the luggage section was usually off one day in a week and two air bridges do not work. I asked him why.
“Because KAA is a parastatal and it has accepted lower standards,” he answered.
And that explains why the government would want to take back KQ. If it is offered for sale, it will be grabbed by the likes of Qatar.
The other option is to let it fold quietly and shrink to the size of its Jambojet subsidiary. If that happens, JKIA would be left with only one operating terminal.
Again, since 60 per cent of its business comes from KQ, there is a high probability that this would dent the income from JKIA.
Unable to pay loans it took from local banks, Kenya Airways was forced in 2017 to give the financial institutions a 38.1 per cent shareholding. There is fear that if the airline collapses, it could go down with the banks.
Another realisation was that the government was giving about 90 per cent of its business to foreign companies since KQ does not have freighters.
Last month, Kenya Airways transformed one of its Boeing 787 Dreamliners into a freighter to add to the two Boeing 737-300 that had been operating.
As our national carrier, Kenya Airways is more than an airline. The National Aviation Management Bill — now in Parliament — should address its place in our economy and help KQ match what other government-run airlines such as Ethiopia, Qatar, and Emirates have done.
It should be an integrated business, and the real pride of Africa; not the joke that it is. Surely, we cannot run an airline with a matatu mindset.