Government beware: buyout of Kenya Airways will not help the airline

By MUNGAI KIHANYA

The Sunday Nation

Nairobi,

31 May 2020

Why is the Government so hell-bent on buying out its co-shareholders of Kenya Airways? So much so that it is now planning to reorganise the structure of the civil aviation sector in order to find a way of nationalising the company?

The answer to that question is beyond the scope of this column, but I must state that, as a patriotic citizen, I am very uncomfortable about this deal.

In August last year, I wrote about the options available for nationalising the airline. These suggestions involved either paying very little to the other shareholders (Sh20 each regardless of number of shares held) or giving them nothing (money goes to Kenya Airways directly).

My reasoning was that Kenya Airways desperately needs cash injection, not a change of ownership. Indeed, the company recently asked the government for a Sh7.3 billion bailout – a request that was denied.

In August last year, I had estimated that the airline needed about Sh10 billion to survive for one year. It appears that I wasn’t very far off the mark.

Kenya Airways announced its results for 2019 today. They show a net loss of Sh13 billion and this has depressed the insolvency position of the company further. Liabilities now exceed assets by close to Sh18bn.

To make things worse, the coronavirus pandemic has paralysed the airline industry all over the world. So, the business has come to a stop.

Strangely, in this horrible environment, the price of the company’s shares at the Nairobi Securities Exchange have increased three-fold – from under one shilling to Sh3.46 – in the month of May alone!

If anyone in government is reading this, I urge you not to buy out the existing shareholders. Such a move will not help the airline at all: it will only enrich speculators who do not care at all whether the company survives or not.

Indeed, as I have been saying over the last several years, these shares should be suspended from trading at the stock market. This is an insolvent company with negative working capital. Suspensions are there for a very good reason: to protect the public from exactly the kind of thing that is happening to Kenya Airways right now.

While the government is considering the best way to go about rescuing the company, speculators are buying in and cashing out, each time making a killing from ignorant small holders.

Today the share price is hovering around Sh3.50 and speculators are selling. If some doubts are cast on the nationalisation plan, it will drop to, say Sh2 and the opportunists will buy back. And a new cycle will start.

This seesaw needs to be stopped throw a suspension from the stock market. Once the rescue plan is finalised and published, then the shares can either be returned to the trading boards or withdrawn for ever (in case of nationalisation).