Kenya Airways Chief Executive Officer Sebastian Mikosz says Rwanda’s national carrier, Rwandair, will be bigger than Kenya Airways in five years due to Government subsidies and the investments the country has made in its aviation industry.
While appearing before the National Assembly Transport and Public Works Committee on Tuesday, Mikosz said Kenya Airways (KQ) is losing out to state-owned airlines like Ethiopian Airlines and Rwandair who, unlike KQ, are not required to pay a dividend to shareholders.
“KQ has the highest structure of costs in the region unlike Rwandair and Ethiopian which are fully government funded,” said Mikosz,.
The national airline has lost about 4 percent market share at the expense of ET and Rwandair which have grown their market by 20 percent and 22 percent respectively.
“Rwanda Airlines have increased their capacity to 100 aircrafts while KQ has 40 planes. Ethiopian is creating Africa’s largest fleet cost,” added Mikosz who was flanked by KQ Chairman Michael Joseph.
The two were appearing before the committee to explain the rationale of merging the operations of Kenya Airways and Jomo Kenyatta International Airport.
Mikosz explained KQ’s competitors, including the gulf carriers, have controlled integrated aviation industry in contrast to Kenya’s fragmented approach.
He said that KQ is the only airline that wants to grow connectivity at JKIA.
“Ethiopia, Rwanda, Turkey, Uganda, Tanzania all have integrated aviation operation. It’s not about KQ having access to the money of KAA (Kenya Airports Authority) but giving us access to the hub which at lower prices,” explained Mikosz.
He further said KQ is losing a significant volume of business to rivals because they can charge cheaper rates.
At the same time, Joseph said the Mawingu project, which was supposed to turnaround the airline did not take off.
“Any dime we make will be invested in the airport and the airline. That’s the only we can remain competitive.”
The new project Simba, which targets to increase traffic to JKIA from the current 7 million to 11 million by 2022, is tied to the partnership with KQ.
“Increasing JKIA capacity will require CAPEX to invest in terminals and upgrade of current runway,” said Mikosz.
According to government officials, the proposed Privately Initiated Public Private Partnership would create a Special Purpose Vehicle that would run the assets of JKIA on behalf of KQ and the Kenya Airports Authority.
The concession agreement is projected to create 3,000 jobs from the current 950.
According to Mikosz, Kenya is not creating new jobs due to the failure of creating the value of connectivity, which is the role other airlines are doing for their countries.
“Emirates, Qatar and Mauritius airlines are contributing 23pc to GDP on average. KQ is contributing 3pc -3.2pc.”
Earlier, Transport Cabinet Secretary James Macharia has said that the tie-up between Kenya Airways and Jomo Kenyatta International Airport should be treated as a geopolitical strategic and not necessarily a financial rescue plan.
Macharia told the committee that the Privately Initiated Invested Proposal will ring-fence Kenya’s aviation industry from other airlines who have adopted a similar strategy.
He further clarified that the proposal is a government policy approved by the Cabinet adding that Kenya Airways should be seen as a national asset representing the country abroad.
“If you view Kenya Airways as just another corporate you lose the point. This is a body that carries our national flag. KQ is our country, it goes beyond the balance sheet which most people look at,” he said.
Macharia further told the House team that the global aviation landscape has undergone rapid evolution yet Kenya lags behind.
“The Kenyan aviation sector is facing challenges characterized by turbulence experienced by the national carrier as well as loss of business by the JKIA. The market situation has created the need for comprehensive restructuring covering not only Kenya Airways but the whole aviation sector,” he said.
He told the lawmakers that the takeover proposal – which would last for 30 years – was under consideration by the Public-Private Partnership Unit in the Treasury adding that that the Cabinet would act only on its direction.
The CS revealed that the government was reconsidering going forth with the PIIP following public outrage over the impending takeover by the national carrier that is not doing well financially.
Macharia indicated that the PIIP may not happen after MPs pointed out that the Cabinet did not ‘know what it wants’.
Nyatike MP Tom Odede said the House should be cautious in approving the initiative because it looked like the cabinet is engaging in a risky fishing expedition while Peris Tobiko (Kajiado Woman Representative) stated that plan ‘lacked clarity and is superficial’ adding that Parliament which oversights the Executive will not approve a budget to such unclear venture.
Transport CS told the parliamentary committee that they would look into other options if the Privately Initiated Investments Proposal (PIIP) by Kenya Airways did not receive the nod from the Treasury.
“Following concerns raised by the public, we are now exploring other opinions of delivering the objectives of the government to consolidate our aviation assets. Once an agreed option has been identified, we shall submit the same to the Cabinet for approval,” Macharia told the MPs.
“We are sensitive to public opinion and have to address all of them. Maybe the final document might not be PIIP but something else that will be accommodative to all the concerns raised.”
By KEN MACHARIA