Let us approach proposed plan on managing JKIA with caution

The proposal to merge Kenya Airports Authority (KAA) with Kenya Airways (KQ) has elicited agitated arguments from those opposed and those in support. The polarising debate has now mutated into violent protests led by Kenya Airport Workers Union. This is a clear testimony that little may have been done to prepare key stakeholders and the general public before making the proposal known outside the Cabinet. This was in itself a dangerous omission.

PUBLIC ASSETS

One of the imperatives of the Constitution is public participation. It is particularly critical when a major policy decision or policy shift is involved; especially so when it entails substantial public investment. In the normal manner of transacting government business, therefore, the sponsoring ministries (Transport and Treasury), before presenting the Cabinet Memo (Cab Memo) for consideration and approval of the merger plan, should have obtained public views. It is inconceivable that this was not done.

In any event, if public stakeholder views were not sought and obtained by the time of submitting the Cab Memo, no further action should have ensued post Cabinet approval without stakeholder participation given the magnitude of the policy decision. The ministries concerned, should have facilitated public stakeholder participation, and Cabinet Office (Presidential Delivery Unit), oversight to ensure this was done in conformity with the spirit of the Constitution.

Be that as it may, it is necessary to consider the substantive issues involved in the policy proposal soberly. Those in support point out a number of potential benefits and advantages. First, proponents have stated that it is trendy and the new normal for a national airline and national aviation authority to operate as one; giving examples of Ethiopia, Malaysia, Qatar, and others. They add that by so doing, considerable benefits of synergy and economies of scale accrue, thus enhancing economic viability, operational efficiency and competitiveness of the national aviation industry. While such arguments have considerable credence, it should nevertheless be pointed out that in such examples both the national airline and national aviation authority are wholly owned national public assets.

FREE DONATIONS

In our case, while KAA is wholly State-owned, the financially crippled KQ is a joint public-private entity, with government, on behalf of citizens, owning minority shares at 48.9 per cent. The rest of the KQ shares are owned by Lenders Company Ltd (a syndicated company of local and foreign banks and financial institutions KQ owes money) at 38.1 per cent; the Dutch airline, KLM, at 7.8 per cent; Kenya Airways employees, at 2.4 per cent; while the rest of the minority shareholders combined own the remaining 2.8 per cent. Kenya Airways is thus “Kenyan” by description only.

Secondly, by reverse mathematics, based on KQ shares distribution, should the merger plan proceed to completion, the citizens will have made free donations of equivalent value of their collective ownership of Kenya Airports Authority assets to KQ private shareholders as follows; 38.1 per cent to Lenders Company Ltd; 7.8 per cent to Dutch airline, KLM; 2.4 per cent to Kenya Airways employees; and 2.8 per cent to the rest of minority shareholders combined.

The critical question of governance and accountability to be considered then is; on what basis and to what avail would Kenyans donate such large tranches of their high value assets as vested in Kenya Airports Authority to KQ private shareholders, including foreigners?

BLURRED VISION

Third is the dictum of prudent portfolio management; never throw good money after bad! The Cabinet Secretary for Transport, Mr James Macharia, and of National Treasury Henry Rotich, and the KAA Chairman Isaac Awuondo – all being accomplished money managers – should know better than throwing the asset-rich, strategic, viable and financially stable airports authority at the crippled KQ!

In this regard the hard question that must be asked is: Why, in spite of the strategic engagement of KLM, by shareholding and direct management, KQ failed to pick up and stay afloat.

Moreover, care should be taken that the proposed merger does not dampen necessity of efforts to recover suspected pilfered assets from former management that brought down KQ, and that “the inherent malignant cancer” in KQ does not infect and degrade shareholder value and profitability of KAA, when the two are merged.

Fourth, we need to consider imperatives of “profit-centres” and “cost-centres” as strategic tools for managing institutions, whether private or public. From a national investment asset management viewpoint, KAA and KQ are two distinct profit-centres or cost-centres, whichever way one thinks of them. From a portfolio management viewpoint, they should be treated and managed as such for ease of determining their comparative return on investment and general value-addition to the public good. The moment the merger is done there is bound to be a blurred vision of the two portfolios; with the better performing KAA covering up for the non-performing KQ, unless that is what the merger is partly intended to do. Otherwise caution is advised.

CONSCIENCE

Finally, within the conversation surrounding the merger plan is whether it is ethical for the Group CEO of one of the lenders to KQ, CBA, to sit on the board of KAA, and more so as its chairman, during this critical moment of negotiating the merger. Technically and legally, nothing really stops the gentleman from holding key positions in both institutions. The issue, therefore, reduces to one of personal conscience.

At such times one is guided by his or her inner spirit to advise the appointing authority to choose someone else for the sake of preserving and protecting the public image and good standing of the appointing authority.

As one who has been there on a number of such occasions and respectfully opted out, I can attest to the fact that the appointing authority ends up respecting and valuing one even more. One who respects power doesn’t fear it!

Mr Syong’oh is a former Assistant Minister for Trade and Investment Affairs, and Special Policy Advisor, Ministry of Foreign Affairs and International Trade; [email protected].