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Introduction

Kenya Airways Ltd (KQ) is a public-private partnership while Jomo Kenyatta International Airport (JKIA) is a public property owned and operated by Kenya Airports Authority (KAA), a government parastatal.

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(Photo by WAKA)

Every single development in JKIA has been undertaken using taxpayer’s money and whereby loans, they are paid using taxpayer’s money. Hence, JKIA is 100% owned by the Kenyan people who are the taxpayers.

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Though Kenya Airways Ltd operates Kenya’s national carrier with the flying slogan “Pride of Africa”, it is not wholly-owned by the Kenyan government on behalf of the Kenyan people. Ownership of KQ is a partnership between the public and the private sectors since it was privatized.

The private sector represents many countries across the globe.

However, JKIA is wholly owned by the Kenyan people but managed by KAA which also manages all government airports among other public assets in the aviation industry on behalf of the Kenyan people.

Shareholding

KQ was initially 100% owned by the government (taxpayer’s money) but was privatized in 1996 thus becoming a public-private partnership with shares traded at Nairobi Securities Exchange, Uganda Securities Exchange and Dar es Salaam Stock Exchange.

KQ’s shareholding is spread across the public and private sectors. The Kenya government owns 48.9%, KQ’s creditors who are a consortium of banks under KQ Lenders Company 2017 Ltd own 38.1%; KLM (a strategic partner) owns 7.8% while 5.2% is owned by the general public. Therefore, KQ has substantial private shareholders some corporate entities while others are individual shareholders.

KQ Lenders Company 2017 Ltd is a consortium of banks that have loaned KQ money in the past. Some of the local banks in the consortium of lenders are:

1. Equity bank.
2. Kenya Commercial bank.
3. Co-operative bank.

KQ Subsidiaries

KQ holds shares in other companies. KQ owns 100% African Cargo Handling Limited and Jambojet. Also, KQ partly owns Kenya Airfreight Handling Limited with 51% shareholding and Precision Air (Tanzanian carrier) with 41.23% shareholding.

Revenue Growth

KQ is in the business of human and cargo air transport. The following is the turnover and profit before tax (PBT) growth for the years of income from 2012 to 2017 using the year of income in 2012 as the base year.

Year Turnover PBT

2013 – 8.38 % – 404.47%

2014 7.23 % 55.10%

2015 3.92 % – 511.23 %

2016 5.44 % 12.16%

2017 -8.51 % 60.91%

The assumption is that the financial figures are not from consolidated accounts. That is a financial figure are only for KQ and do not include its subsidiaries.

From the above figures, KQ’s turnover declined by 8.38% in the 2013 year of income but recorded positive growth between the years of income 2014 and 2016 before reverting to loss-making recording -8.51% growth in 2017. This means that KQ’s business is not consistent.

From the PBT for the years of income 2013 and 2015, it is apparent that KQ had substantial expenses in those years that negatively impacted on its profitability. For the years of income 2016 and 2017, the company reported increased PBT meaning that the company was managing its expense side of the P&L accounts. If this trend continues, the company may turn to profitability shortly.

From this figure (which are from public sources), KQ business health is wanting. Some of the challenges faced by the company are from volatile fuel price movements, recent political crises in the country, stiff competition from low budget airlines and ongoing costly restructuring process. All these impact negatively on KQ’s cash flows.

Currently, KQ is still a loss-making organization. Hence, it is not expected to pay any corporate income tax. In essence, it is not contributing to the national exchequer.

Kenya Airways Authority

Kenya Airports Authority (KAA) manages Jomo Kenyatta International Airport (JKIA), Moi International Airport, Kisumu International Airport, Eldoret International Airport, Wilson Airport, and Malindi Airport. This is in addition to managing other small airports.

KAA is a government parastatal; hence financial reports are not available to the public.

But we have previously been told that KAA is a profit-making entity.

However, in August 2018, the Standard Newspaper gave a glimpse of KAA’s performance in an article on KAA’s report on Airports performance in Kenya between 2016 and 2017 for the three main airports. It was reported that in JKIA, there was 8.21% passenger increase while aircraft landings increased by 3.17%.

Also, at Moi International Airport, passengers increased by 16% while the number of aircraft landings also increased. In Kisumu International Airport, passengers increased by 37.7% while aircraft landing increased by 64.1%.

Further, in Eldoret International Airport, passengers increased by 10% while flight landing increased by 14.2%. From the available data, we can deduce that KAA must be reporting handsome profits because there is growth in the number of passengers business and especially from JKIA.

It is obvious JKIA is the cash cow for KAA.

Taxpayer’s money

It is the responsibility of KAA to manage and continuously develop airports in Kenya. KAA being a parastatal and all its facilities have been built using public funds (taxpayers’ money). Also, any KAA’s loans are guaranteed and are paid for by the Kenyan government which is from tax money.

JKIA is a publicly funded entity that belongs to the Kenyan people. Hence, KAA as an organization has no powers to hand over any of the properties under its care without permission from the Kenyan people.

The deal

Currently, from media reports, there is a proposal by KQ to take over JKIA for thirty (30) years. This proposal smells bad for several reasons.

First, it is ironical that a loss-making organization is taking over operations of a profit-making organization. Common senses dictate that a loss-making organization should be taken over by a profit-making organization.

Second, KAA has been operating profitably and hence should be the one taking over operations of KQ and turn it to profitability.

Third, handing over JKIA which is a public entity to loss a making organization like KQ is to award mediocrity. KQ was making profits and it is in public domain what happened to the company to turn it into the sorry state that it is in today. Strategic reorganization of KQ should not include awarding the company with public property like JKIA.

Fourth, KQ’s core business is passenger and cargo transport, and not airport management. If KQ is not able to handle its current transport business, how will it handle the management of the Airport? The mandarins in KQ should concentrate on restructuring the company and turn it to profitability.

Fifth, KQ is one of the airlines that operate in JKIA. Handing over JKIA will give the company undue advantage over the other companies thus creating unfair competition.

Sixth, JKIA belongs to the public. If KQ was owned 100% by the government, taking over JKIA would not be a problem. However, the government owns only 48.9% of KQ’s shares. This means that 51.1 % shares are owned by the private sector. Why would the government hand over JKIA to KQ?

Seventh, apart from involving the public as the owners of JKIA, it is apparent that other stakeholders have not been involved. For example, as I write this article, local and international travellers are stranded at JKIA since the workers under Kenya Aviation Workers Union (KAWU) have called a strike protesting the proposed take-over of JKIA by KQ.

Eighth in Kenya, there are laid down procedures of handing public properties to the private sector through the Privatization Act (2015). Since the government has not announced to the Kenyan public that it is privatizing JKIA, is it doing so through the back door? This is in contravention of the privatization Act.

The questions

The top management in KQ and JKIA have converging agenda hence the current attempt by KQ to take over JKIA. It is a fact that KQ Lenders Company 2017 Ltd owns 38.1% while KLM (a strategic partner) owns 7.8%. This begs the following questions:

1. Who is interested in taking over the Kenyan public property through the back door and why?
2. Is KQ under “under the table” receivership?
3. Are the banks under KQ Lenders Company 2017 Ltd pressurizing the government for their money and the government finding itself with no money is offering JKIA?
4. What exactly is the deal?
5. Since KQ is not currently paying corporate taxes, why should the company be “given” a public entity that contributes to the exchequer and one that was built with taxpayer’s money?
6. How is the deal going to benefit the owners of JKIA… that is the Kenyan people?

Conclusion

The government shareholding in KQ and KAA including all the airports and other properties in the aviation industry that it manages are public properties funded by taxpayer’s money.

The Kenyan public expects the government to take care and develop further the public properties. Not a single political party has in its political manifesto selling, giving or donating public properties as political promises to the Kenyan people.

Therefore, the government of the day has no right to hand over public properties to the private sector without seeking approval from the owners (Kenyan public).

If JKIA is handed over to KQ, those responsible should be ready to answer any questions in the years ahead. This deal may end up like the 1 Malaysia Development Berhad (1MDB) deal that was ostensibly for purposes of transforming Kuala Lumpur into an International Financial Centre (IFC) and spur economic growth. This scandal took place during the reign of former Prime Minister Najib Razak who is facing charges today.

Also, lessons are still fresh from what happened in South Africa in 2018 to former President Jacob Zuma and the aftermath as a result of state capture. But the Guptas are roaming free while Jacob Zuma is no longer president.

Though this website is about tax, matters tax is not only about paying tax. That would be dishonesty to the readers. The taxes are paid to the government of the day for recurrent and development expenditures.

The government does not have its own money and all developments are done on behalf of the taxpayers using the money generated by taxpayers or loans that will be paid using money from taxes.

Therefore, it is not enough for us to only tell you about paying taxes and shy away from informing you of the use of those taxes. That would be part of the job. There is the other part about how taxes are utilized by the government.

For any clarifications, get in touch through the email.

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Disclaimer

This post is for general overview and guidance and does not in any way amount to professional advice. Hence, www.taxkenya.com, its owner or associates do not take any responsibility for results of any action taken on the basis of the information in this post or for any errors or omissions. Kenyan taxpayers must always rely on the most current information from KRA. Tax industry in Kenya is very dynamic.

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