Kenya Airways set to renegotiate KLM pacts

Monday July 17 2017

KQ and KLM to review master agreement. file photo | nmg

KQ and KLM to review master agreement. file photo | nmg 

By MUGAMBI MUTEGI
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The Treasury and Dutch carrier KLM are set to renegotiate key agreements in light of the ongoing restructuring of Kenya Airways #ticker:KQ , which will see 11 banks become the national carrier’s second-largest shareholder.

Kenya Airways and KLM will review a “master co-operation agreement” entered into in 1995 that governed their working relationship as the two single-largest shareholders of KQ.

This co-operation pact, among other things, stipulated their directorship entitlements (two each) and gave KLM veto powers insofar as hiring and firing of managing and finance directors, asset acquisition and altering of routes.

This deal will now be amended as KQ’s local bankers are set to swap Sh23 billion in KQ debt for a 35.7 per cent stake, overtaking KLM whose ownership is set to nearly halve to 13.7 per cent after the restructuring.

“The government, KQ lenders company (the banks) and KLM as the principal shareholders of KQ have agreed to enter into the (new) co-operation agreement,” a circular that KQ has sent to its shareholders states.

The new pact will see the Treasury get two seats on the KQ board, while KLM and banks will appoint one director each with the lenders directorship entitlement tied to them holding at least five per cent shares of the carrier.

KLM and KQ are also set to renegotiate the joint-venture (JV) agreement they entered into in 1995, which sees them share revenues on certain routes based on a pre-determined ratio after deducting expenses.

The pair flies about a million passengers to 43 destinations every year, generating about $500 million in revenue.

Many stakeholders have opined that the pact should be done away with as it does not benefit KQ. The airline’s management, however, says the deal is still beneficial but admits that some clauses that overly favour KLM need to be amended.

“The JV is a commercial agreement between KLM and KQ and is independent of changes to shareholding as is happening right now,” said Mr Mbuvi Ngunze, KQ’s former chief executive and now a restructuring adviser for the national carrier.