The dream of floating a pan-African airline could happen earlier than expected. Kenya Airways is fast-tracking negotiations to launch common initiatives with South African Airways (SAA), with which it signed a pact last year to establish an African airline by 2023.
The signing of the Strategic Partnership Framework by the two African airlines will see them work together to increase passenger traffic, cargo opportunities, and general trade by taking advantage of strengths in South Africa. It is expected that the partnership will improve the financial viability of both airlines. Customers will also benefit from more competitive price offerings for both passenger and cargo segments.
The partnership framework aligns well with the aspirations of the Africa Continental Free Trade Area Agreement (AfCFTA) of providing a single market for goods and services, facilitated by the movement of persons and goods to deepen the economic integration and prosperity of the African continent. It also includes demand recovery and other cost containment strategies which will aid the recovery of both carriers in an increasingly competitive African airline environment.
Expediting business plans
Kenya Airways chairman Michael Joseph, in a response to AirInsight’s inquiry, said while the pact is a long-term agreement, both airlines are in talks to jointly expedite the implementation of common business plans to gain a competitive edge over rivals. “We are already talking about some initiatives we can implement sooner,” Joseph said without disclosing the cited immediate common business plans. The two carriers signed a Strategic Partnership Framework in South Africa last November, in a move that will see the two carriers eventually form a Pan-African carrier amid common longstanding financial woes exacerbated by the Covid-19 pandemic. “The pact has been signed but it will take some time to implement fully,” added Joseph.
Bailout
The Kenyan Treasury plans to offer Kenya Airways a further Sh146.9 billion bailout amid delayed recovery from a travel slump following Covid-19 in financial support that will see the State drop the plan to nationalize the airline. Treasury Secretary Ukur Yatani said earlier the government will take over Sh93.4 billion of national carrier Kenya Airways’ debt owed to multiple suppliers. It will also give the airline Sh53.4 billion in direct budget support in the fiscal year that ends in June 2022 as well as the subsequent one, making it the largest corporate bailout. The bailout comes as the State dropped the favored long-term solution for the ailing Kenya Airways that was anchored in the nationalization of the airline—which was approved by lawmakers in July 2019 and would have led to the delisting of the airline from the Nairobi Securities Exchange (NSE).
Recovery plan
Kenya Airways said the long recovery prospects and diminishing revenue in an environment of increased costs due to tight health and safety measures mean it will require a bailout to stay afloat. The persistent underperformance of the airline has led to huge losses and loss of market share to rival firms. “This cooperation aligns with Kenya Airways’ core purpose of contributing to the sustainable development of Africa and is based on mutual benefits,” Joseph had said earlier when the pact was signed. It is expected that the partnership will improve the financial viability of the two airlines. Customers will also benefit from more competitive price offerings for both passenger and cargo segments. Both Kenya Airways and SAA have been loss-making for years.
