How Kenyan Government took over Kenya Airways, a lesson for Nigeria

Rotimi Amaechi Minister of Transport

The Kenyan government has announced its take over of the country’s national carrier, Kenya airways. Kenya’s Treasury Secretary (equivalent of Nigeria’s Finance minister) made the announcement today.

“The government of Kenya shall acquire effective control in Kenya Airways and it shall make an application to the Capital Markets Authority for exemption from the take-over requirements in compliance with the Take-overs regulations,”

The government will convert loans it had granted the airline amounting to $238.1 million an additional 19.1 stake, taking its total holdings to 48.9%. Lenders to the airline will also convert part of their debt into equity.

Why the Kenyan government  may have taken the action

Kenya Airways in 2016 declared a$253 million loss one of the largest in Kenyan corporate history. Converting its stake, prevents creditor banks from taking over the airline.

Should Nigerian Government have rescued Nigeria Airways ? 

Nigeria Airways, the country’s national carrier was liquidated by the Federal Government due to its large debt overhang. The airline reportedly owed over $100 million in debts, and only recently were pensioners of the defunct airline settled. The Nigerian government through the Asset Management Company of Nigeria (AMCON) has had to bail out two airlines Arik Airlines and Aerocontractors due to debts owed Nigerian banks running into hundreds of billions of Naira. AMCON converted the loans it had injected into the airlines into equity, and is now a key shareholder. This then begets the question Should Nigeria have rescued Nigeria Airways ?

Why the government bail outs ? 

The airline industry is a difficult one to operate in as profit margins are quite thin.  The carriers are also subject to various volatile factors such as petrol prices and foreign exchange rates. The depreciation of the Naira against major world currencies last year, lead to a hike in air fares and difficulties in foreign airlines accessing FX to repatriate their revenue. The FX challenges also led to a hike in the operating costs for most airlines.

Kenya Airways Ltd is the flag carrier of Kenya.[3] The company was founded in 1977, after the dissolution of East African Airways. The airline was wholly owned by the Government of Kenya until April 1995, and it was privatised in 1996, becoming the first African flag carrier to successfully do so. The Airlines’ are traded on the Nairobi Stock Exchange, the Dar es Salaam Stock Exchange, and the Uganda Securities Exchange.