Kenya’s government recently said it will pay more than $800 million of the debt owed by the national carrier, Kenya Airways, and give it nearly half-a-billion dollars in budget support over the next two years. Economists disagree on whether the government is making the right move.
The government recently said it will support the airways for two years to remain competitive.
The government recently requested $800 million from the International Monetary Fund to fund the bailout. The state owns 49 percent of the airline.
Samuel Nyandemo is a lecturer at the University of Nairobi, teaching economics. He says the government has no business supporting money-losing companies.
“It’s not the work of the government to subsidize non-profit making entities,” Nyandemo said. “Instead, the government should try to privatize such kinds of bodies that are not able to stand on their own feet. So, it’s defeatist for the government to borrow money and start subsidizing a body like Kenya Airways which has monopoly power in the market and this is just because of mismanagement.”
In September, Kenya Airways Chief Executive Officer Allan Kilavuka said the airline suffered a net loss of $100 million between January and June. The company lost $130 million in the same period in 2020.
The airline has been effected by COVID-19-related travel restrictions and flight cancellations.
James Shikwati, a Nairobi-based economist, says the financial hardship caused by the pandemic means the airline is qualified to receive support from the government.
“I think the flexibility of the challenges caused by COVID we would say it makes sense if you keep it alive using all the instruments available that can ensure it goes back to profitability,” Shikwati said.
Kenya Airways’ financial challenges began in 2012.
Nyandemo says the carrier is being mismanaged.
“Kenya Airways has over-employed staff. They are overpaying pilots,” Nyandemo said. “All this has led to inefficiencies in terms of operational cost and that’s why the Kenya airways is not able to break even. Besides that, there is gross mismanagement.”
The Kenyan government has been pushing for the nationalization of the airline but parliament has so far blocked the action.
The International Monetary Fund said in a statement the government has canceled a plan to fully nationalize the airline.
Shikwati says the airline can be profitable if managed well.
“Kenya Airways and Ethiopian airlines have always been competing,” Shikwati said. “Kenya, in the 80s, chose the path of privatizing as a way to make the airline competitive. I think Ethiopia at that time picked on being national heavy government-supported. So now you compare with the realities going on, creating a mixed bag in my view is not a problem. It should be something that can make the airline remain competitive.”
Some economists are calling on the airline to restructure its operations, downsize its staff, negotiate new leases and contracts and use the government’s support and authority.
Source: Voice of America