A walk down Memory Lane as KQ Dives Deeper into Turbulent Financial times

BY HENRY MARETE – Once hailed as ‘The Pride of Africa’, true to its slogan and having gone into the annuls of history as the first state-owned airline in Africa to carry out a successful privatization drive a little over two decades ago, Kenya Airways is today sat deep into loss-making territory. 

Since 2013 – in just under six years – the national carrier has reported losses headed into a cumulative figure of Ksh.100B and there doesn’t appear to be any silver lining in sight, at least not in the foreseeable future.

In 2013, KQ, whose code name derives from the fact that by the time of its incorporation in 1977 the International Air Transport Association (IATA) had already assigned the code ‘KA’ to Korea Air, which was by then already in operation, posted a total loss of Ksh.10.8B.

In 2014. the losses eased to Ksh.4.9B but in 2015, the losses spiked to a record-high Ksh.29.7B before marginally dropping to Ksh.26.1B in 2016. There was no respite for shareholders in 2017 as KQ returned a loss of Ksh.10.2B, Ksh.7.55B in 2018 and Ksh. 8.56B in the first 6 months of 2019.

KQ had sank into loss-making territory in 2012 following a fuel hedging bet gone wrong, and amid a rapid route expansion programme, but swung back to profitability the year after. A fuel hedge is a contractual tool large airlines often use to limit their exposure to jet fuel price fluctuations by entering into an agreement to purchase the commodity from suppliers at a predetermined price for a specified future time period.

Efforts to cut costs in 2012 by retrenching workers saw the airline entangled in a precedent-setting court battle.

But, just when did the rain start beating for a company previously seen as a shining light among its peers across Africa?

Founded in 1977 following the break-up of the old East African Community and the subsequent demise of the then regional carrier East African Airways, Kenya Airways commenced operations on the 4th of April 1977.

In 1986, the Government of Kenya published sessional paper one outlining the need for rapid economic growth and development, in which it was opined that Kenya Airways was better off in private hands rather that wholly – owned by the Government as was the case then.

Philip Ndegwa was appointed KQ board chair to oversee the envisaged divestiture programme. He was succeeded by Isaac Omolo Okero in September 1992, with Brian Davis, headhunted from British Airways where he had gained the necessary know-how on the viability of privatization, was named Kenya Airways Managing Director. During the 1993/94 financial year, the airline returned its first profit since commercialization.

In 1994, the International Finance Corporation (the World Bank’s private sector lending wing) was appointed to provide assistance in the KQ privatization, a process that formally kicked off in 1995. A large aviation partner was sought to acquire 40% of KQ shares, another 40% was reserved for private investors, while the Government of Kenya retained the remaining 20%.

British Airways, KLM, Lufthansa and South Airways were among those angling for the 40% stake earmarked for the targeted large international aviation partner, with KLM emerging the winner.

After further restructuring KQ’s debt, KLM eventually ended acquiring a 26% stake, the Government retained 23% and offered 51% of the shares to the public through a widely celebrated Initial Public Offering (IPO) in March 1996 after which KQ shares were listed on the Nairobi Securities Exchange and cross-listed on the Dar es Salaam Stock Exchange and the Uganda Securities exchange in subsequent years.

But the successful privatization process was to be made a mockery off in subsequent years. A number of questionable business/investment decisions including a costly bet to enter into expensive fuel hedging contracts as well outright plunder of the airlines resources which is presently under investigation by relevant state agencies, are blamed for the string of losses that the airline has posted in recent years.

The Kenya Airways shares, once the envy of many an investor once traded at a high of Ksh.147, but is today fetching a paltry Ksh.2.57!

In a bid to turn the airline’s fortunes around, the KQ board, not headed by former Safaricom Chief Executive Michael Joseph, hired Polish CEO Sebastian Mikosz to replace Mbuvi Ngunze who had served for two years since replace long-serving Titus Naikuni in 2014.

The airline hit rock Bottom during the tenure of Titus Naikuni, who was at the helm of the national career between February 2003 and December 2014.

It was during Naikuni’s tenure that ‘Project Mawingu’, the airline’s rapid route expansion program was envisioned and implemented, with the immediate net effect being the massive losses being reported today.