MPs and ministries in secret talks to rescue Kenya Airways

Details of secret talks between MPs, the Treasury and the Transport Ministry to save the debt-ridden national carrier have emerged.

In what looks like intense backroom discussion forums to arrive at a deal, and which included a four-day retreat in a Nairobi hotel, a number of proposals have been laid on the table to have Kenya Airways spread its losses to other profitable State agencies.

Some of the proposals discussed with the Pokot South MP David Pkosing-led National Assembly’s Transport, Public Works and Housing Committee include letting KQ collapse before coming up with a new airline altogether.

From a list of eight proposals, the Transport committee settled on a final two for further discussion.

Sources that attended a four-day meeting at a Mombasa Road hotel, borne out by documents seen by Sunday Standard, said one of the proposals that may be presented to Parliament for approval is the creation of a parastatal - Kenya Aviation Holding Company (KAHC) - to be tasked with running KQ and the Kenya Airports Authority (KAA).

Sunday Standard understands that one of the proposals is for Jomo Kenyatta International Airport to be transformed into a parastatal. Eventually, it is envisaged, all three -- KQ, KAA and JKIA -- will form separate arms of a new holding company Kenya Aviation Airline Group.

Under the holding company, the group will also run the taxi business and hotels so as to boost its income.

To ensure that it is properly managed, the team proposed that legislation be created to give exemptions to the parastatals to be run like competitive private entities.

Among the proposals to make the deal work is that the government buys off KLM, banks and small shareholders and eventually de-list KQ. The government would then issue shares to each subsidiary in the holding company relative to its business valuation.

The other option is to fix KQ on its own by providing operational incentives to lower its operational costs, debts and and its management problems.

Late last year, it emerged that the Cabinet had given a nod to a deal where KQ would take over the running of JKIA under a Privately-Initiated Investment Proposal (PIIP) to help raise its liquidity.

Annual collection

The deal raised uproar among Kenyans and in Parliament, with many wondering how a loss-making private firm would run a profitable government parastatal, whose annual collections amounted to Sh12 billion. Top officials of KAA and KQ have in the past clashed over the proposed take-over when they appeared before the same house team.

On February 26, when KQ Chief Executive Sebastian Mikosz made his submissions before the Transport Committee, he denied reports that the national airline was planning to completely take over KAA.

“Our intention is not to buy or merge JKIA but to have a co-association operator deal, meaning the land and buildings will remain owned by KAA,” he said. “The word merger or acquisition is not applicable in this matter.”

KAA Managing Director Jonny Andersen, however, expressed his reservations on the Cabinet proposal and pleaded with MPs to ensure due diligence. Andersen said analyses done by KAA had shown “significant gaps” that needed to be addressed.

In the event of a collapse of KQ, insiders say that the airline’s creditors, including the Exim Bank of US which holds a Sh52 billion sovereign bond for the airline, as well as local financiers, would claim their money, a move that will effectively ground the airline.

“The same banks that are part owners of KQ with a 35 per cent stake are still charging the national carrier interest of about Sh2.8 billion every year, so everyday the tax payer continues to lose money,” said a member of the committee.

The team has invited Transport Cabinet Secretary James Macharia, Mikosz, Andersen as well as the Kenya Aviation Workers Union (KAWU) to give their opinions on the proposals beginning this Tuesday, in sessions that will go on to Friday.  Also expected is the Kenya Civil Aviation Authority (KCAA), the State Corporations Advisory Committee, the Public Service Commission (PSC), among others. Members of the public had up to Thursday to submit their views to the committee.

The Clerk of the National Assembly Michael Sialai had put up an advertisement in the major dailies asking Kenyans to give their “views, representations or written submissions” on the proposals.

“In seeking the views of Kenyans, we hope to provide a level of openness and accountability, including public participation in financial matters,” said the committee chairman David Pkosing.

However, Sunday Standard has established that committee members, Transport ministry and Treasury representatives are all aware of the details of the proposals following their four-day meeting.

Sunday Standard understands that CS Macharia will be required to shed light on existing policy gaps in the proposed PIIP.

KQ boss and the board’s chair Michael Joseph are expected to shed light on the implication of the PIIP to the staff should it go as proposed, the current staffing formation structure, remuneration and whether the national carrier was a public or private company, and who the shareholders are.

Mikosz will face the controversial questions of how many aircraft KQ owns, those leased and their owners, the alternatives to leasing and the procurement procedures for acquisition and hiring of aircraft.

He will also be expected to explain fuel hedging, debts held, cash flows, its assets and assets and equities securities by EXIM Bank and local banks.