Pact between KQ, airport agency remains doomed
I am not quite sure whether a struggling national carrier can meaningfully and efficiently manage the Jomo Kenyatta International Airport on behalf of the Kenya Airports Authority (KAA).
Again in a ‘merger’, it is not clear what the mandate of KAA will be, whether it will cease to run operations and surrender everything to Kenya Airways (KQ).
The mandate of KAA is to provide infrastructure for aviation services between Kenya and the outside world by controlling and managing aerodromes.
The beneficiaries are many airlines, including KQ.
SEE ALSO :Two Kenya Airways aircraft collide (Photos)
There is likely to be a conflict of interest if KQ takes over the management of the airport hub from KAA since the national carrier has competitors – other airlines.
Should an airline manage an airport? It would be difficult running an airline and airport at the same time.
In the case of KQ, it is difficult to see how it will successfully manage the airline business and airport.
KQ’s performance has been below par. For example, for the six-month period ended June 30, 2018, it posted a pretax loss of Sh4 billion and for a similar period of a year before, it posted a loss of Sh5.6 billion. Its share price is at Sh8 per share.
SEE ALSO :More turbulence in KQ’s bid to run major airport
The national airline might be having issues with some financial institutions and just recently, it sought massive recapitalisation.
In other countries, airlines with such massive losses could have been closed. And with such performance, all directors should have resigned as it confirms poor management on the part of directors and top managers.
Such a board cannot meaningfully negotiate new investments, because if ‘merging’ with KAA is not new investments, then, what is it?
We will keep on asking the question: how come the planes are flying high but KQ books are showing huge losses? KQ itself should be the target for takeover so that her assets can be used profitably. The finance mainstream literature is clear on companies to be taken over. It is rare for loss-making companies to take over the management of profitable firms because they lack the capital to inject in the firms they have taken over.
Loss-making companies are unable to fund growth thus unable to attract new capital which is a prerequisite for acquiring other firms.
The practice is to starve the loss-making companies of capital. It is not clear whether the KAA suffers unproductive investment or suffers from organisational inefficiencies to warrant restructuring or takeover.
It is the inefficiencies in the targeted companies that allow profit-making firms to raid and turn them into profitable ventures.
KQ is not telling us the improvements they will make to the assets of KAA.
If KQ was a private equity investor and the government was willing to privatise KAA, then such a deal would make sense, but that must be subjected to competitive bidding.
SEE ALSO :KQ moves to wrap up airport takeover
Private-equity investors take large equity positions or can purchase the entire company, and then set the strategic direction for the acquired company.
However, in nearly all such acquisitions, equity investors install their own management team, meaning all top staff at KAA could be ‘replaced.’ In summary, Kenya Airways must come out clear on reasons why they want to take over KAA. Is it about growth, or about economies of scale, or about sources of raw materials or about certain desirable assets?
Finally, the government has an interest in both Kenya Airways and Kenya Airports authority. Some directors of these two firms are also directors or managers in some private banks and there could be a conflict of interest.
I suggest that civil servants are removed from such boards – whether private, public or state corporations.
The practice of having top Treasury staff sitting in nearly all boards of parastatals and State corporations need to be reviewed.
Treasury should strictly play a supervisory role.
Furthermore, having the same civil servants sitting on different boards of State corporations can be dysfunctional if there is the duplication of inefficiencies.
Hopefully, Parliament, as has been indicated, will stop such a deal because matters of airports and aerodromes are sensitive.