Kenya Airways, once the “pride of Africa,” is selling off yet another piece of itself

Grounded. (Reuters/Antony Njuguna)

Kenya Airways, once one of Africa’s leading airlines and a symbol of Kenyan pride, is struggling. The company has recorded four consecutive years of losses, the result of a poorly timed expansion strategy. Now, in need of more than 100 billion shillings (about $1 billion) to pull off a complete turnaround, the airline is in talks to sell off a further stake in itself to foreign investors.

“We are talking to about three or four parties,” Mbuvi Ngunze, the airline’s CEO, told Reuters on Sept. 26, without saying how much the company plans to raise or how large a stake it plans to sell. The airline’s largest shareholders are the Kenyan government, which owns 29.8%, and Air France KLM, which has 27%.

Discussion of a sale has come after efforts such as selling or leasing out seven of its planes and giving up its landing spot at London’s Heathrow airport failed to raise enough money.

The national carrier, better known by its airline code “KQ,” was the first African carrier to be partly privatized in the late 1990s. It was lauded as the carrier that would bring “African aviation into the world’s limelight.” It has since been thwarted by a miscalculated hedge on fuel prices, reduced travel to East Africa over terrorism fears, and competition from cheaper regional rivals like Ethiopian Airlines and Middle Eastern carriers.

Kenya Airway pilots are also defecting to better-paying airlines. Safety has become an issue: Over the past two months, two KQ flights have had mechanical troubles that required emergency landings, and one plane’s tires burst during a landing in Nairobi. Much of the public ridicules the airline, seeing it as a symptom of the government corruption and mismanagement that holds East Africa’s largest economy back.

In some ways, KQ serves as a cautionary tale for those hoping to capitalize on Africa’s expanding aviation opportunities. Intra-regional traffic—measured by revenues per kilometer (RPK)—is expected to expand more in Africa than in any other market except Latin America. What’s more, the number of travelers has increased especially fast in East Africa, and to Kenya in particular. KQ has started more routes to China as well as new flights to Cape Town, Ngunze pointed out. Yet despite all this, KQ, like several other national carriers, is struggling.

These airlines’ troubles can be traced to internal problems—from mismanagement to political interference. But external factors, such as high airport fees and taxes, as well as expensive insurance, are also obstacles. (Africa accounted for 43% of fatal airline accidents in 2014, despite only having a 3% share of global air traffic.)

Nonetheless, Ngunze has been eager to play up the potential. “We have a fantastic business across Africa … Africa is where things will grow and it shows you that people have an interest in the business of Kenya Airways in spite of the fact that we have had these hurdles,” he told Reuters.

Source: http://qz.com