Chewing Gum and Walking

Kenya Airways-South Africa JV is step towards pan-African airline, says CEO Kilavuka

By David Whitehouse

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Posted on May 25, 2023 04:00

 © Kenyan Airways planes are parked at the Jomo Kenyatta International Airport in Nairobi, Kenya, 24 March 2020. REUTERS/Baz Ratner
Kenyan Airways planes are parked at the Jomo Kenyatta International Airport in Nairobi, Kenya, 24 March 2020. REUTERS/Baz Ratner

National airlines in Kenya and South Africa can make progress towards their plan for a pan-African airline while the search for new investors in Kenya Airways continues, CEO Allan Kilavuka tells The Africa Report.

Antitrust approvals have now been received from both countries for a joint venture on the trunk route between Nairobi and Johannesburg, Kilavuka says. The companies will share revenue and costs and co-operate on capacity on the route, with a start date to be announced shortly.

Kenya Airways and South African Airways believe that their best chance of ending years of losses lies together, but both need to address their legacies of excessive debt. The privatisation of South African Airways, which was in administration between December 2019 and April 2021, has yet to be concluded, with regulators saying the co-owners of low-cost carrier Lift need to be excluded from the purchasing Takatso consortium.

Shares of debt-loaded Kenya Airways, meanwhile, haven’t traded since 2020. A restructuring plan was introduced under former President Uhuru Kenyatta in 2021, as part of which the government would take over $800m of debt.  Kilavuka says he’s confident that the government of President William Ruto will “revalidate” the company’s business plan, but that it’s not yet clear how the restructuring will be paid for.

Kenya’s public finances are under pressure, with the government facing a $2bn Eurobond maturity in June 2024. Kilavuka says the government has to juggle competing priorities, but is “committed to supporting us both directly and indirectly.”

For now, the company is working on a new capital structure, but there isn’t a prospective investor in the pipeline. Kilavuka doesn’t see that preventing progress on the pan-African project. “You can chew gum and climb the stairs at the same time,” he says. Some investors, he adds, are showing interest in investing in both Kenya Airways and a pan-African operation, while other unnamed airlines are “knocking on the door” wanting to join.

Government support for Kenya Airways is contingent on “permanent cost reduction measures, increased productivity, and improved operational efficiencies,” the company said in a statement on 9 May. Pay discussions with pilots are an issue which has yet to be concluded. Most items have been agreed but some are still outstanding, Kilavuka says. He’s aiming for the “fundamental” issues with the pilots to be solved by 30 June.

Cargo demand weakens

Kilavuka is aiming to make Kenya Airways profitable in 2024. The fundamentals for the business are strong, he argues, pointing to a favourable location, talent pool and prospects for increased African air traffic in the long term.

The company is seeking to reduce reliance on passenger traffic. For the moment, cargo volumes have declined due in part to global financial instability, Kilavuka says. “Demand is softening,” Kilavuka says. Volumes are “not as we expected them to be.”

Cargo currently accounts for about 10% of the company’s business, and Kilavuka wants to increase that to between 20% and 25% over time. One contributor to that will be cold-storage cargo, for which Kenya Airways has now received certification from the International Air Transport Association (IATA). That will allow the airline to transport agricultural produce and vaccines. “Cold storage is going to be fundamental,” Kilavuka says.

Unmanned drones are another avenue for diversification. The airline has been using drones for agricultural uses such as field inspection, spraying and fertilizer application, providing a “cheaper and more accurate” solution for farmers,  Kilavuka says. He’s waiting for certification to be able to extend drone use to inspecting the company’s own aircraft, which he hopes to secure within the next year.

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