Ruto plans to split Kenya Airways into subsidiaries after failed State takeover
Ruto plans to split loss-making Kenya Airways into various subsidiaries after failed State takeover.
President William Ruto wants Kenya Airways split into various subsidiaries in a State-backed restructuring plan that is aimed at returning the lossmaking national carrier to profitability.
According to the nominee for the position of Cabinet Secretary for Roads, Transport, and Public Works, Kipchumba Murkomen, the changes will enable Kenya Airways to split into its two primary business segments, passenger and cargo.
Charter services and innovative ventures like drone services are some of the other subsidiaries that the new government has in sight.
Mr. Murkomen disclosed on Wednesday during vetting that President William Ruto is collaborating with Kenya Airways and other stakeholders to restructure the airline and bring it back to profitability.
The fresh restructuring plan comes after the State dropped the favoured long-term solution that was anchored on the nationalization of the airline.
The airline’s listing on the Nairobi Securities Exchange would have been revoked under the plan that was approved by parliament in July 2019. (NSE).
The national carrier has received multi-billion shilling State bailouts amid delayed recovery from a travel slump following Covid-19.
Kipchumba Murkomen told MPs that Nairobi is the leading cargo destination in the region yet KQ, as it is known by its international code, controls only 10 percent of the cargo market share.
“We need to separate cargo from passenger services so that KQ benefits from the business,” Murkomen said.
“We intend to create subsidiaries in KQ. We need to have a passenger airline, cargo airline, and charter airline. We might also need KQ to have other businesses on the side like drone services and surveying services as one way of raising revenue,” he added.
He did not go into specifics about how the split of KQ will assist in turning around the carrier, which has been losing money for more than ten years.
Cargo, passengers, and handling, KQ’s three primary business segments, are all losing money. Operating losses for the passenger service were Sh4.5 billion, freight Sh1.74 billion, and handling Sh166 million.
Kenya aimed to imitate countries like Ethiopia which manage all aspects of air transportation, including airports and fueling operations, under a single corporation and use funds from the more successful components to subsidize the less profitable ones.
KQ would become one of four subsidiaries under an aviation holding company under the concept endorsed by MPs.
The others would be Jomo Kenyatta International Airport, an aviation college, and the Kenya Airports Authority operating all other airports.
Murkomen Wednesday told Parliament that the State would not convert its debts or bailout cash into shares. “We do not want to cross the 50 percent shareholding because we want KQ to remain a privately owned company,” he said. The government owns 48.9 percent of KQ shares.
“We have to ask ourselves why KQ is in the situation it is currently. It is because of mismanagement of project Mawingu, but there is a restructuring process currently underway led by President Ruto,” he said.
KQ recorded a ninth consecutive half-year loss, sinking it Sh15 billion deeper into a negative equity position.
The airline, which has been surviving on State bailouts since the Covid-19 pandemic, reported a Sh9.8 billion loss in August — a better performance than the Sh11.48 billion loss it recorded in the same period a year earlier.
It booked a further Sh5.3 billion loss on hedged foreign exchange differences, driving its total comprehensive loss to Sh14.9 billion.
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