There is no science to it, no magic 8-ball to predict the future. If you buy something for sale, sell it for more than you bought it. If a venture is losing money, and the light at the end of the tunnel has been snuffed out by a gale-force wind, shutter the venture and move on. If you owe money, pay it back. Quick.
At this level, everyone can read a basic balance sheet. Kenya Airways is awash with red ink. KLM, the Royal Dutch airline, holds 23% of Kenya Airways stock and the Government of Kenya holds 30%, but the value of those shares has been sliding since the airline's Board published its end-year results and declared a massive 25.7 billion shilling hole. So where did that money go?
Project: Mawingu, its ambitious, decade-long expansion programme, required debt to make it workable. When the going was good - those months after the lunacy of 2007/2008 when tourists started coming back to Kenya - passenger numbers kept up with the purchase of new planes. But, apparently, Project: Mawingu was not supposed to cover short-haul, single-aisle planes, the Embraers that form the backbone of the KQ fleet in Kenya and the East African Community. So when did the Embraers enter the picture and at what price?
Then there is the fuel hedging business. As far as I understand it, KQ entered into a hedging agreement with its fuel suppliers because the price of crude was headed towards $100 a barrel. We don't yet know whether the hedging agreement was short term, medium term or long term. We do know that the price of crude made a remarkable turnaround, settling at one point for $48 a barrel. This turn around meant KQ was paying too high a price for its fuel for an ever larger fleet of aircraft in an industry in which passenger numbers had plateaued and foreign competitors were undercutting it on price and beating it on customer satisfaction.
KQ management attempted to stanch the red ink on its books. It shelved its bold - or foolhardy - aeroplane purchase programme for a "sale-and-leaseback" arrangement. Someone else would purchase the planes KQ had ordered. KQ would lease those planes from that someone. The "someone" seems to be a moving target; some days it is one company, but on other days it is more than one, sometimes even three. It got a "soft" loan from the National Treasury of 4 billion shillings to help it meet its payroll obligations, while at the same time attempting to "rationalise" its staff complement by laying off cabin crews and pilots. The rationalisation programme ran into headwinds and the judiciary didn't help matters much by siding with the employees' unions.
In the run up to the big reveal about its losses, KQ obtained yet another loan - this time $200 million. I wonder where KQ management imagines the money to service these loans and retire them on time will come from. That being so, KQ is at the centre of an elaborate economic ecosystem. It is a direct employer of pilots, cabin crews, ground crews, engineers. It is an indirect employer of ticketing agents, tour agents, insurance agents, catering suppliers, fabric manufacturers, airframe manufacturers, tyre manufacturers, fuel suppliers. Its collapse will reverberate throughout the economy.
Its collapse, though, will not be the be all and end all. It will not spell doom for the country. Other venerable companies with the name "Kenya" attached were looted and liquidated too, Kenya National Assurance being only the most obvious. Why should taxpayers be asked to pump in at least 60 billion shillings for the spectacular ineptitude of managers and shareholders simply because KQ has the Government as a major shareholder? Perhaps it is time we privatised the airline fully and let the shareholders decide its fate. We can't give a bankrupt company any more tax shillings. We shouldn't.
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