We really have no choice but to save ailing Kenya Airways

Wednesday March 23 2016

A Kenya Airways plane in full flight. FILE PHOTO | NATION MEDIA GROUP

A Kenya Airways plane in full flight. Pilots have been stopped by the Employment and Labour Relations Court from going on strike from April 28, 2016. FILE PHOTO | NATION MEDIA GROUP  

By JAINDI KISERO
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In my younger days, I did not believe in subsidies and bailouts to ailing State-owned corporations.

I used to hold the view that the whole concept of a national flag carrier was an anachronistic and unaffordable thing only meant to serve ego trips for the political elite.

I firmly believed in the theory of comparative advantage as a universal law of economics and held the view that governments had no business being in the airline industry.

I make these remarks as an entry point into a discussion on the decision by the National Treasury to allocate Sh25 billion to bail out the troubled Kenya Airways.

With age, I have become smarter. I have learnt that modern capitalism still needs high levels of State spending and intervention.

Indeed, recent experience the world over has shown that even in sectors where the State has implemented privatisation - whether in the form of outright sale of public assets to the private sector or through the so-called public private partnerships or outsourcing - public spending has been increasing, with the State now and then intervening to dish out cash with one hand and set performance targets with the other.

STATE SUPPORT

If you are in doubt, just look at how the South Africans recently responded when their national flag carrier ran into head winds.

The government of South Africa lent airline’s long-term turnaround strategy by giving permanent financial guarantees amounting to an equivalent of Sh99 billion.

To demonstrate even more political commitment, the shareholder, namely the government, decided to expand its membership on the committee responsible for the turnaround strategy.

When Malaysia Air ran into trouble, the government extinguished private interests in the company and injected fresh capital into the airline to keep it flying.

Closer, home it is no secret that Ethiopian Airlines enjoys massive State subsidies, including tight controls on access rights in its skies.

It is also not a secret that three of the most successful airlines in the world, namely Emirates, Etihad, and Qatar, benefit directly and indirectly from massive State support, principally through massive aircraft orders and investments in home airport hubs.

We forget that under Vision 2030, the nation’s long-term economic blueprint, we have set our eyes on making Nairobi Africa’s main transport and aviation hub.

We have an ambition to make Kenya a regional and international financial centre. We want to make Nairobi a hub for medical tourism and schools offering international curriculums.

These are very valid ambitions for Kenya. A profitable and stable Kenya Airways is what will make these dreams a reality.

Mark you, landlocked Ethiopia is also planning to turn itself into Africa’s chief aviation hub to support the growth of tourism and manufacturing.

Kenya’s current airport expansion is expected to increase capacity from six million passengers annually to 22 million by 2018.

KQ AFRICAN CONNECTIONS

We cannot afford to allow the Ethiopians to surpass us because, as things stand, we are already way ahead of our neighbours, our airline being the de facto national airline for about 15 African countries.

With 58 point-to-point connections in Africa, Kenya Airways can claim to be the airline with the most such connections in Africa, surpassing Ethiopia, which has 40, and South African Airlines with 26.

When I look at Kenya Airways, I do not just see its balance sheet, but also the potential of the company to the national economy.

Indeed, the fortunes of Kenya Airways have implications on the performance of the tourism and horticultural industry.

Its financial health has implications on the number of transnational corporations which decide to locate their regional headquarters in Nairobi.

The national carrier has major financial challenges. With the help of the Mackinsey consultants, the management and board have crafted a five-year turnaround strategy.

Another consultant is in place to advise on the restructuring of the balance sheet.

This is not enough. If I were President Uhuru Kenyatta, I would immediately appoint a small war Cabinet to take charge and work with the new board and management to steer the national carrier’s revival.

We cannot allow our national flag carrier to crash.

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