Category Archives: KLM

Government Guarantee to Kenya Airways and Shareholding Increase

Today the Kenya government signed guarantee deals to secure Kenya Airways (KQ) continued financial support from EXIM Bank US, and a consortium of Kenya banks and also converted its debt to more equity, significantly altering the ownership structure of the airline.

The Government had advanced loans of Kshs 4.2 billion and $197million to KQ, and the debt conversion will see a 19.1% increase in their shareholding. Aside from, that Kenyan banks, which were owed $217 million, received a 38.1% shareholding in KQ in exchange for $167 million of that debt.

The $267 million government debt and bank conversions are part of a series of complex restructuring deals. The resultant shareholding of KQ will be Kenya Government 48.9%, Kenyan banks 38.1%, KLM 7.8%, and other shareholders will have 5.2%, after a  massive dilution that shareholders approved at an EGM in August 2017. Not all bank and all government debts were converted as that would have seen the government stake go above 51% and they wanted KQ to remain a private company, not a state/parastatal one. The restructured board will comprise 3 directors from the Government, 2 from the banks, and KLM will have 1 representative.

Treasury Cabinet Secretary Henry Rotich said that the guarantee and restructuring by the government was not a bailout and the Government expected repayments of dividends from KQ within the next decade. The Government had been faced with two options with regard to KQ one of which (folding the airline) it could not pursue, and it chose the other, to support the airline, for which, the Cabinet confirmed through an independent business case study by the Seabury Group, that the airline could, through shareholder support, be turned around and have a viable future. He said the capital optimization would enable the airline to trade on its own balance sheet.

Transport Cabinet Secretary James Macharia said that aviation sector, led by Kenya Airways,  contributes 10% to Kenya’s GDP and was a central engine that supports other economic activities like investments, horticulture, and tourism. Also by having a strong KQ, this would strengthen the case to make Nairobi’s JKIA airport a regional hub and his Ministry was in the process of finalizing plans to add a second runway and expanding existing terminals to enable the airport to serve 12 million travelers a year.

The bank shareholding will be through KQ Lenders Co, a special purpose vehicle that will be managed by Minerva Fiduciary Services of Mauritius and the agreement was signed by Madabhushi Soundararajan a career-banker, as director.

Airline Megadeal

As KLM scales down its investment in Kenya Airways, it is involved in another aviation mega-deal.  Air France-KLM is buying a 31% stake in Virgin Atlantic as part of a series of deals that look set to shake up the airline world.

IFC celebrates KLM’s investment in KQ

Excerpts 

  • Delta Air Lines becomes the largest shareholder at 49 percent in Virgin Atlantic and founder Richard Branson cedes control. He will retain a 20% stake through his Virgin Group and the airline will continue to fly under the Virgin brand.
  • Delta Air Lines will take a 10% stake in Air France-KLM with the three airline companies coming together to create a single global joint-venture.
  • China Eastern Airlines will also take a 10% stake in Air France-KLM.
  • Air France-KLM’s investment in Virgin Atlantic will cost around $287 million (£220 million), while the two 10% stake sales are being valued at $981 million (€751 million) each for Delta and China Eastern.

The long-term aim of the deals is to bring the two pre-existing joint ventures—Air France-KLM, Delta and Alitalia, and secondly Delta and Virgin Atlantic—within a single joint-venture. The goal is that all the companies work more closely together, helping them fly more passengers to more destinations at a lower cost (to themselves). Plus, Air France’s balance sheet gets a makeover.

While Virgin has been struggling, as shown by the modest transaction price, it has one very attractive asset: landing slots at London’s crowded Heathrow airport, where passengers tend to pay higher fares

Meanwhile, some tension has been cited in the partnership between KLM and Air France.

  • A clash of national cultures and an inability to understand each other’s languages threatens to make the merged Air France-KLM group of airlines unmanageable, according to a leaked internal company report.
  • French staff in the Franco-Dutch company complain their colleagues from the Netherlands are money-grubbing, while the Dutch regard the Air France staff as aloof, according to the report. Among the petty grievances, there is irritation that a KLM employee working in Paris is charged €10 for lunch in the canteen, while an Air France colleague pays only €4.

 

Kenya Airways Restructuring Update

Yesterday Kenya Airways had a press conference with new Chairman Michael Joseph and outgoing CEO Mbuvi Ngunze. They spoke of restructuring changes happening at the company some of which included:

  • CEO search: Kenya Airways has listed between 15 and 18 candidates for CEO position, from all over the world. Shortlist will be 3-4 for final interviews (Via @wgkantai)
  • Challenges with staff. During the restructuring, some engineers have left KQ to work for Middle-East carriers. Crucially, the Chairman now seems to agree with the CEO on the need to revisit talks with the pilots union and to enhance staff productivity during the restructuring.
  • The contract with Mckinsey consulting is being wound down. It had been criticized for being very expensive. Many of the restructuring initiatives under the airline’s Operation Pride for revenue generation and cost saving were formulated by KQ staff and are being implemented by KQ staff, and hence the consultants’ time is over. Mr. Joseph said that this restructuring plan is now 55% complete.
  • KLM partnership:  The chairman defended the joint venture between KLM and KQ which some of the airline’s critics, especially its pilots, a claim was to the airline’s disadvantage. “Right now KLM is the best partner for us in terms of the route structure. The benefit is to KQ because KLM flies more routes and sells more tickets. We get revenues from the countries we don’t fly to into the joint venture. In the end, we benefit
  • The Chief Executive of KLM resigned from the KQ board and was replaced by Jos Veenstra who is a chartered accountant and is currently the VP Mergers Acquisitions and Holdings for Air France/KLM, and who has ben alternate director at KQ. It does not appear to be related with the restructuring. (via Capital FM)

What’s Your Travel Dream?

I’ve been invited to write about KLM dream deals, a selection of low fares that the airline for both their economy and business class travelers. From Nairobi, KLM serves over 460 destinations over the world. i.e Kenyans can click and pay for tickets to travel to far-reaching parts of the world.

What motivates ones to travel? Usually it’s work. Or to attend a conference or course, or to conclude a business deal. Sometimes it’s to attend university or (I hope not) for medical treatment.

But people also have dreams, of things that they want to do and places that they want to visit in life. These include entertainment, historical, fun, or interesting places.  Did you envy seeing your friends watching the rugby world cup at Twickenham? Or your parents visiting biblical sites in Israel last Christman? You may aspire to to see ancient Greece or to attend mass as the Vatican, and you should one day.

At a seminar this week, financial consultant  Waceke Nduati, founder of Centonomy, gave an answer to the question – what would you advise you younger-self? Her answer was to spend your money on the things you care about. Travel is not pricey once you decide and plan and save for it. Waceke also cited how simple savings can affects one’s life – and if you consider that the Kshs 300 ($3) that many young working people in Nairobi spend for lunch every day, can add up to almost Kshs 100,000 ($1,000) at year-end which theyc an then use to pay for something that they dream of doing like education or travel.

So, if you work hard, save your money, and plan ahead, such as with KLM Dream Deals, then you should get to fulfill your lifelong travel dreams. I’ve always been fascinated by the Kennedy assassination and I plan to one day plan visit Dealey Plaza, in Dallas Texas, to solve the mystery.

What’s your travel dream?

Understanding the KQ & KLM Partnership

 The IFC-led privatization of Kenya Airways (KQ) in which KLM became a strategic partner, and shareholder, in the airline,  purchasing 26% of the Kenya government’s shares in the airline for US$26 million, and after which the shares of the company were listed in an IPO, was celebrated as one of the most significant privatization deals for a decade, until Kengen and Safaricom.

But that’s all in question with the recent loss announced by Kenya Airways with quite a bit of blame being directed at KLM for the position in which the KQ finds itself in. What does this entail?

A master cooperation agreement and shareholders agreement were signed between KLM and KQ in 1995, and a codeshare agreement and joint venture agreement followed in 1997.

KLM has seats on the board of Kenya Airways and some of the tenets of master cooperation agreement give any KLM director veto power over KQ decisions on:

IFC celebrates KLM's investment in KQ

IFC celebrates KLM’s investment in KQ

  • The appointment or dismissal of the Managing Director or Finance Director of KQ
  • The acquisition or disposal of any aircraft and any other variation in the size and composition of  KQ’s fleet. (KQ’s 2012 rights issue IM notes that following the approval of a 10 year business plan in July 2011,  KQ’s management embarked on implementing the strategic initiatives for the first five-year period. In particular, the Business Plan envisaged that KQ will acquire 46 aircraft over the period to March, 2016.) 
  • The allotment and issue of any shares
  • Entering into of any co-operation agreement with an airline that is a major competitor of KLM.
  • Material alteration KQ’s existing route network or material increase or reduction in the capacity on its routes
  • Material commitment or expenditure on sales and marketing or distribution of KQ’s products and services
  • Any sale of shares by the Government of Kenya to a major international airline.

Other notes from the IM and media

Global ticketing: In 2010, Kenya Airways became a full global airline partner of the SkyTeam global airline alliance, alongside KLM, having been an associate partner since 2007. KQ is currently the only SkyTeam member with significant operations in Africa.  With 14 SkyTeam member airlines, KQ’s passengers can take up to approximately 14,000 daily flights to 926 destinations in 173 countries. (So KLM helped KQ join? Will a break from KLM mean a break from Skyteam?).

Freight: In support of KQ’s expansion into freighter operations through the launch of a dedicated freighter business, the Board of Directors approved the acquisition of 12 freighter aircraft. In February, 2012, KQ introduced its first dedicated cargo aircraft, a Boeing 747-400F, to be operated in association with KLM and which was expected to fly twice weekly between Guangzhou, Nairobi and Lagos.

Passengers: This translated article hails Kenya Airways as being a jewel in the crown of KLM:  “The investment by KLM Kenya Airways is one that works out well for both parties.  Both companies fly each day between Amsterdam and Nairobi which there is a double daily connection..collectively the route has about one million passengers transported per year..

The cooperation agreement was expanded in November 2013: ..the collaboration was extended with the new routes London-Nairobi, Amsterdam-Entebbe / Kigali, Amsterdam-Lusaka-Harare and Amsterdam, and the Amsterdam-Kilimanjaro / Dar es Salaam. Kenya Airways and KLM jointly total around 44 weekly flights with a total turnover of over US$500 million.

However, this week, the KQ CEO said that the “In the context of the revenues and the costs on the routes in the joint agreement venture which we share 50-50, over the last three years, the route has been loss making,” ..and he said the Dutch Airline had since paid them a settlement transaction.