KQ future bleak as MPs reject merger with KAA

Mkikuyu- Akili timamu

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Feb 16, 2018
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Hapa naona wambuge wamefanya jambo la busara..kama shirika la KQ lipo karibu kufa heri life tu peke yake lisiambukize mashika mengine
===============================
KQ future bleak as MPs reject merger with KAA
FRIDAY, FEBRUARY 22, 2019 11:40
BY EDWIN MUTAI
kq.jpg
A KQ plane at the JKIA in Nairobi. FILE PHOTO | NMG

Members of Parliament have suspended a proposed merger between Kenya Airways (KQ) and the Kenya Airports Authority (KAA), leaving the cash-strapped national carrier facing a bleak future based on its weak financial standing.
The Public Investments Committee (PIC) said the proposed merger would render the profitable aviation regulator, KAA, bankrupt in a turn of events that now threatens to stall a process that was intended to hand the ailing airline a financial lifeline.
A Cabinet paper prepared in May last year had warned that Kenya Airways had less than one year to survive if the merger flopped and the carrier did not get a significant capital injection.
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“This committee rules that no final transaction should proceed on this matter until this House concludes its investigations.
"We are directing the Auditor-General to move fast and undertake a forensic audit on this transaction. We will be writing to you to that effect,” Mvita MP Abdulswamad Nassir told KAA managing director Johnny Andersen. Mr Nassir is also the PIC chairman.
Documents tabled in Parliament by Mr Andersen show that the KAA board of directors was apprehensive of the Privately Initiated Investment Proposal (PIIP) tabled by KQ with the backing of the Cabinet.
KAA, which collects Sh7 billion from Jomo Kenyatta International Airport (JKIA) annually, will collect Sh2.9 billion if the KQ deal sails through this year, the KAA board said in confidential minutes of a meeting called to carry out a preliminary evaluation of the deal.
“While comprehensive risk assessment of the proposed transaction will be concluded as part of the detailed due diligence, the Board should take note… if JKIA is concessioned out, the arrangement will deprive KAA significant resources given that the concession fee will not significantly cover the operational and CAPEX costs of the remaining airports, airstrips and head office,” the board minutes say.
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Precarious position
A prolonged delay of the merger puts Kenya Airways in a precarious financial position.
The deal was intended to put the national carrier on a stronger financial footing to compete effectively with rivals such as Ethiopian Airlines and Middle East carriers.
The Cabinet memo prepared last year noted that Kenya Airways’ recent financial restructuring to the tune of Sh75 billion ($750 million) was insufficient to resolve its challenges.
The memo says that KQ's fortunes must now be hooked on a comprehensive national aviation policy that includes offering it significant tariff breaks.
“Should matters remain in the current state, KQ, the biggest revenue driver for JKIA, may collapse or significantly reduce operations within the next year and JKIA will downgrade and eventually be relegated to the status of a regional airport as no foreign carrier will develop JKIA for the benefit of Kenya,” KQ and KAA said in a joint paper presented to the Cabinet.
The KAA board minutes show that in KQ’s financial model, annual concession fees have been set at an initial $28 million (Sh2.9 billion) in 2019, rising gradually to $35 million (Sh3.6 billion) in 2028 and peaking at $60 million (Sh6.1 billion) in 2033, 15 years into the concession term. KQ seeks to take over JKIA management from KAA for a period of 30 years.
“In comparison, 2018/19 KAA’s non-JKIA operations are budgeted to cost Sh6.6 billion in recurrent expenditure, a Sh3.7 billion shortfall from the proposed concession fees of Sh2.9 billion.
Inadequate concession fee
The proposed concession fee is therefore inadequate to cover the cost of running KAA’s other facilities,” state the board minutes signed by KAA chairman Isaac Awoundo and Katherine Kisila on November 12, 2018.
“Currently, JKIA accounts for nearly 83 percent of KAA’s revenues and 51 percent of the recurrent expenditure,” says the KAA board.
Mr Andersen on Tuesday told the committee that KAA receives Sh7 billion annually from JKIA, accounting for 85 percent of its annual turnover.
The board resolved that management proceeds to initiate formal due diligence and engagement with KQ on the basis of the Cabinet decision and the PPIP.
The board also observed that KQ’s proposal assumes that KAA will retain all contingent liabilities, including those arising from JKIA’s operation.
“Even though the actual amounts to be paid out after resolution of the Sh32 billion contingent liabilities and disputed claims will be significantly lower, the non-inclusion of these liabilities in the proposed transaction will certainly leave KAA worse off financially,” the board said.
The board said KQ did not propose a definite capital investment programme over the life of the concession, but instead proposed that the minimum investments levels be negotiated for inclusion in the project agreement.
KQ recognised the importance of investments aggregating $1.3 billion to be undertaken within the first five years.
KQ capacity questioned
The KAA board questioned the capacity of KQ to execute the transaction through a special purpose vehicle (SPV), saying it will require careful assessment as part of due diligence.
“KQ has proposed to engage an Airport Advisor… the arrangement which brings KQ, JKIA and the Airport Advisor's employees together need to be carefully examined especially from labour management and governance perspective."
The KQ PIIP envisages a transaction structure that will result in initial secondment and transfer thereafter, at the discretion of the concessionaire, of JKIA staff.
“This policy direction is being led from the highest office in the land,” the minutes quote Transport PS Paul Maringa as telling the board.
After receiving unconvincing responses from Mr Andersen who said KAA did not initiate the process of JKIA takeover, the PIC directed a freeze on the deal pending conclusion of its probe.
Mr Nassir said a transaction advisor hired by KAA through competitive restrictive tendering to advise on the KQ proposal has been paid Sh15 million or 10 percent of the Sh150 million contract fee.
He directed Mr Andersen to table preliminary reports on the advice given by consultancy firm KPMG and legal firms hired to look into the KQ proposal.
 

joto la jiwe

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Sep 4, 2017
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Asante kwa correction:
Mhariri Tafadhali tengeneza maadishi hayo yana spelling mistake - "wabunge" na "Mashirika"
Hahahaha, wamebaki kuwa spelling correctors siku hizi, wamekuwa wakipoteza nguvu nyingi kutetea corrupt Jubilee government bila mafanikio, wameona hailipi bora wajiingize kwenye kurekebisha spellings.

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Depay

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Another bout of Hormonal imbalance again.....Si utapata shida sana
 

TEMLO DA VINCA

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Sasa kama unajua wanafanya uhuni nyie ka RAIA wenye uchungu na nchi yenu mmechukua hatua gani... Au ndio mnasubiri mpaka mgombanishwe kikabila ndio mshike mapanga??? # idiots
Hainihusu. The questionable ones are owned by unscrupulous individuals walio serikalini. Unaposikia hasara ujue ni cooked losses .Hawa watu wanachukua kilicho chao na kuacha KQ kuonekana imefilisika but it's a lie. It doesn't incur such heavy losses

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Kevin85ify

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It is not really bleak the merger will happen because KQ is the single largest contributor to KAA profits. 50% of KAA revenue comes directly from KQ, so they are linked to the hip. If KQ falls KAA also suffers and the GOK will not permit that to happen.
 

Kevin85ify

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An even bigger problem for KQ is not the losses, those are reducing and revenue is increasing. It is the protectionism by other governments eg. ethiopia. Kenya opened up it's airspace according to the Single African Air Transport Market initiative a gesture that has not been reciprocated by other countries, thus denying KQ much needed traffic while opening kenya up to KQ rivals. That is why i am against the africa free trade agreement because other countries g. ethiopia and tanzania will use the system to exploit kenya while closing their markets to kenyan products.
 

Mkikuyu- Akili timamu

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Feb 16, 2018
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It is not really bleak the merger will happen because KQ is the single largest contributor to KAA profits. 50% of KAA revenue comes directly from KQ, so they are linked to the hip. If KQ falls KAA also suffers and the GOK will not permit that to happen.
KQ dies other airlines takes their place and continues to pay KAA..Its very silly to assume that people travel because there is KQ, the market and money is there whether KQ exists or not
 

Msapere

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Jul 18, 2018
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Whether they merge or not how will that affect Tanzania... ATCL is the most useless airline in Africa
Hapa naona wambuge wamefanya jambo la busara..kama shirika la KQ lipo karibu kufa heri life tu peke yake lisiambukize mashika mengine
===============================
KQ future bleak as MPs reject merger with KAA
FRIDAY, FEBRUARY 22, 2019 11:40
BY EDWIN MUTAI
kq.jpg
A KQ plane at the JKIA in Nairobi. FILE PHOTO | NMG

Members of Parliament have suspended a proposed merger between Kenya Airways (KQ) and the Kenya Airports Authority (KAA), leaving the cash-strapped national carrier facing a bleak future based on its weak financial standing.
The Public Investments Committee (PIC) said the proposed merger would render the profitable aviation regulator, KAA, bankrupt in a turn of events that now threatens to stall a process that was intended to hand the ailing airline a financial lifeline.
A Cabinet paper prepared in May last year had warned that Kenya Airways had less than one year to survive if the merger flopped and the carrier did not get a significant capital injection.
RELATED CONTENT
“This committee rules that no final transaction should proceed on this matter until this House concludes its investigations.
"We are directing the Auditor-General to move fast and undertake a forensic audit on this transaction. We will be writing to you to that effect,” Mvita MP Abdulswamad Nassir told KAA managing director Johnny Andersen. Mr Nassir is also the PIC chairman.
Documents tabled in Parliament by Mr Andersen show that the KAA board of directors was apprehensive of the Privately Initiated Investment Proposal (PIIP) tabled by KQ with the backing of the Cabinet.
KAA, which collects Sh7 billion from Jomo Kenyatta International Airport (JKIA) annually, will collect Sh2.9 billion if the KQ deal sails through this year, the KAA board said in confidential minutes of a meeting called to carry out a preliminary evaluation of the deal.
“While comprehensive risk assessment of the proposed transaction will be concluded as part of the detailed due diligence, the Board should take note… if JKIA is concessioned out, the arrangement will deprive KAA significant resources given that the concession fee will not significantly cover the operational and CAPEX costs of the remaining airports, airstrips and head office,” the board minutes say.
Also Read
CompaniesKenolKobil share freeze signals delisting at NSE
CompaniesKenGen posts flat net earnings at Sh4.12 billion
Precarious position
A prolonged delay of the merger puts Kenya Airways in a precarious financial position.
The deal was intended to put the national carrier on a stronger financial footing to compete effectively with rivals such as Ethiopian Airlines and Middle East carriers.
The Cabinet memo prepared last year noted that Kenya Airways’ recent financial restructuring to the tune of Sh75 billion ($750 million) was insufficient to resolve its challenges.
The memo says that KQ's fortunes must now be hooked on a comprehensive national aviation policy that includes offering it significant tariff breaks.
“Should matters remain in the current state, KQ, the biggest revenue driver for JKIA, may collapse or significantly reduce operations within the next year and JKIA will downgrade and eventually be relegated to the status of a regional airport as no foreign carrier will develop JKIA for the benefit of Kenya,” KQ and KAA said in a joint paper presented to the Cabinet.
The KAA board minutes show that in KQ’s financial model, annual concession fees have been set at an initial $28 million (Sh2.9 billion) in 2019, rising gradually to $35 million (Sh3.6 billion) in 2028 and peaking at $60 million (Sh6.1 billion) in 2033, 15 years into the concession term. KQ seeks to take over JKIA management from KAA for a period of 30 years.
“In comparison, 2018/19 KAA’s non-JKIA operations are budgeted to cost Sh6.6 billion in recurrent expenditure, a Sh3.7 billion shortfall from the proposed concession fees of Sh2.9 billion.
Inadequate concession fee
The proposed concession fee is therefore inadequate to cover the cost of running KAA’s other facilities,” state the board minutes signed by KAA chairman Isaac Awoundo and Katherine Kisila on November 12, 2018.
“Currently, JKIA accounts for nearly 83 percent of KAA’s revenues and 51 percent of the recurrent expenditure,” says the KAA board.
Mr Andersen on Tuesday told the committee that KAA receives Sh7 billion annually from JKIA, accounting for 85 percent of its annual turnover.
The board resolved that management proceeds to initiate formal due diligence and engagement with KQ on the basis of the Cabinet decision and the PPIP.
The board also observed that KQ’s proposal assumes that KAA will retain all contingent liabilities, including those arising from JKIA’s operation.
“Even though the actual amounts to be paid out after resolution of the Sh32 billion contingent liabilities and disputed claims will be significantly lower, the non-inclusion of these liabilities in the proposed transaction will certainly leave KAA worse off financially,” the board said.
The board said KQ did not propose a definite capital investment programme over the life of the concession, but instead proposed that the minimum investments levels be negotiated for inclusion in the project agreement.
KQ recognised the importance of investments aggregating $1.3 billion to be undertaken within the first five years.
KQ capacity questioned
The KAA board questioned the capacity of KQ to execute the transaction through a special purpose vehicle (SPV), saying it will require careful assessment as part of due diligence.
“KQ has proposed to engage an Airport Advisor… the arrangement which brings KQ, JKIA and the Airport Advisor's employees together need to be carefully examined especially from labour management and governance perspective."
The KQ PIIP envisages a transaction structure that will result in initial secondment and transfer thereafter, at the discretion of the concessionaire, of JKIA staff.
“This policy direction is being led from the highest office in the land,” the minutes quote Transport PS Paul Maringa as telling the board.
After receiving unconvincing responses from Mr Andersen who said KAA did not initiate the process of JKIA takeover, the PIC directed a freeze on the deal pending conclusion of its probe.
Mr Nassir said a transaction advisor hired by KAA through competitive restrictive tendering to advise on the KQ proposal has been paid Sh15 million or 10 percent of the Sh150 million contract fee.
He directed Mr Andersen to table preliminary reports on the advice given by consultancy firm KPMG and legal firms hired to look into the KQ proposal.

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Kevin85ify

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Apr 6, 2019
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KQ dies other airlines takes their place and continues to pay KAA..Its very silly to assume that people travel because there is KQ, the market and money is there whether KQ exists or not
The contribution of KQ and its effect on the economy contribute to about three percent of kenya's GDP. I have not said free trade is not the only thing affecting kenya but it is one of the major issues affecting our companies. I am a realist and i will state that what kenya needs now as a start is fight corruption(has already began and assets are being recovered), renegotiate trade agreements with african countries in comesa and eac, build big enough a military to secure its interests in the region and beyond.
 

Mkikuyu- Akili timamu

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Feb 16, 2018
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The contribution of KQ and its effect on the economy contribute to about three percent of kenya's GDP. I have not said free trade is not the only thing affecting kenya but it is one of the major issues affecting our companies. I am a realist and i will state that what kenya needs now as a start is fight corruption(has already began and assets are being recovered), renegotiate trade agreements with african countries in comesa and eac, build big enough a military to secure its interests in the region and beyond.
Whether KQ contributes to GDP is a non issue..Other Airlines also do so, If KQ dies other airlines take over and contribute to GDP without having treasury always taking public money to bail out KQ
 

Kevin85ify

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Apr 6, 2019
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Whether KQ contributes to GDP is a non issue..Other Airlines also do so, If KQ dies other airlines take over and contribute to GDP without having treasury always taking public money to bail out KQ
No other airlines have interest in their own countries eg. ethiopian despite having an over representation in the kenyan airspace contributes more about 7% of GDP to the ethiopian economy and less than 1% to the kenyan, so no the outcome is not the same. ethiopian will not employ kenyans as KQ does, it will not support the kenyan logistics and catering companies as KQ does. That is why KQ can not and will not fall and if the merger is requisite for this to happen then so be it, on this one I am fully behind the Government Of Kenya.
 

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