Kenya Airways, KLM Royal Dutch Airlines reviewing long-standing agreement

[Photo: Courtesy]

Kenya Airways (KQ) and KLM Royal Dutch Airlines have started reviewing a long-standing agreement that is expected to substantially reduce the latter’s powers in the management of the national carrier.

The deal, once completed, is also expected to bring on board Air France.

The review of the joint venture agreement follows the restructuring that the national carrier undertook last year.

Relooking the agreement was one of the conditions for the restructuring process that was concluded in November last year and which resulted in substantial dilution of KLM’s stake in KQ.

It saw the Dutch carrier’s stake drop to 7.8 per cent from 26.7 per cent previously.

The agreement was initially signed in 1996 and last reviewed in 2013. In its initial form, it gave KLM immense powers in the management of KQ, much to the frustration of the Government.

In addition to reducing KLM’s control over KQ, the new agreement is expected to include Air France in the KQ-KLM joint venture. Air France merged with KLM in 2004.

KQ and KLM have lodged an application with the Competition Authority of Kenya (CAK), seeking exemption from some restrictive trade practices.

In a public notice published on Friday, CAK said the two had made the application to be exemption from sections of the law that prohibit companies to get into agreements that might prevent, distort or lessen competition.

Largest shareholders

This means the joint venture between KQ-KLM/Air France once completed will give travellers limited options.

The Competition Act, however, offers instances where entities can be exempt from the section of the law prohibiting them from getting into an agreement.

CAK also notes it is not the first time that the carriers have sought such an exemption.

“The original JV (joint venture) agreement was exempted by the Authority on May 30, 2013,” said CAK Director-General Wang’ombe Kariuki in the gazette notice.

After the financial restructuring concluded towards end of last year, the Kenyan Government and 10 banks converted loans into equity, making them the two largest shareholders with a combined stake of 87 per cent.

KLM’s stake, on the other hand, was significantly diluted to 7.8 per cent, from the previous 26.7 per cent. 

The Dutch carrier’s number of directors on the KQ board also went down to just one, with a rider that it would lose this seat should its stake fall below five per cent. The airline might, however, be able to claw back some its shareholding in future with injection of new capital and if it increases its stake to 13 per cent.