Implement radical reforms to wean KQ off State bailout

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Implement radical reforms to wean KQ off State bailout


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Kenya Airways planes at the Jomo Kenyatta International Airport on July 31, 2020. PHOTO | SALATON NJAU | NMG

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Summary

  • The capital support is larger than previously expected and is just the latest in a series of bailouts that have been doled out without an improvement in the financial position of the national carrier.
  • The discipline to keep a lean payroll until profitability is achieved is one of the areas KQ has struggled with.
  • The airline last year lost 365 employees through resignations and voluntary exits but hired 371, including some of the former workers.

The government must implement the radical restructuring of Kenya Airways #ticker: KQ which it said would accompany the upcoming bailout of the airline to the tune of Sh36.6 billion.

The capital support is larger than previously expected and is just the latest in a series of bailouts that have been doled out without an improvement in the financial position of the national carrier.

In acknowledgment of the risk of the airline becoming a sinkhole for taxpayer funds, Treasury Cabinet Secretary Ukur Yatani said in his budget speech that KQ would have to make substantial changes to benefit from the latest bailout.

He said the airline would be required to reduce its network, rationalize frequencies of flights, operate a smaller fleet, and rationalize its workforce.

Insights from a consultant recently hired by the airline should guide the restructuring efforts. There is a need to drop or significantly cut back on loss-making routes.

This is a good time to review the network as the global travel industry recovers from the Covid-19 slump.

This will necessitate the sale or return of some aircraft to lessors. There will also be a need to reduce the workforce to serve the shrunken operations.

The discipline to keep a lean payroll until profitability is achieved is one of the areas KQ has struggled with. The airline last year lost 365 employees through resignations and voluntary exits but hired 371, including some of the former workers.

Mr Yatani said the restructuring costs would be funded through the new money the government will be disbursing to the company as shareholder loans.

It is important that these changes, which KQ should have implemented over the years in response to market conditions, are now carried out thoroughly to wean the airline from taxpayers’ coffers.

Letting the carrier continue on its current unsatisfactory path will cost the public dearly.

The new bailout will push the government’s financial support for the airline to Sh56.6 billion in under a year, making it the largest corporate bailout in Kenya.

While KQ is a strategic asset serving tourism and other sectors of the economy, it is not sustainable for it to run losses indefinitely.

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