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Kenya Airways, SAA hunt for investor for pan-African plans

Kenya Airways (KQ, Nairobi Jomo Kenyatta) and South African Airways (SA, Johannesburg O.R. Tambo) are planning a series of investor roadshows to help find a financial backer for a combined airline group they aim to create next year, Bloomberg reports.

The campaign will see events staged in Africa, London, and the United States to attract a majority investor for a holding company to be modelled on the IAG International Airlines Group. It is likely to start before the end of the northern-hemisphere summer, Kenya Airways Chief Executive Officer Allan Kilavuka said in an interview on Thursday at the CAPA Airline Leader Summit.

The governments of Kenya and South Africa plan to take a minority stake in the venture, which has the working name Pan-African Airline Group, Kilavuka said.

The carriers are also seeking to recruit a third member from West Africa, most likely in Nigeria, Ghana, Côte d'Ivoire, or Senegal, he disclosed.

Kilavuka suggested the carriers could consolidate their global alliance membership, with Kenya Airways quitting Skyteam or SAA exiting Star Alliance. KLM Royal Dutch Airlines, the Dutch arm of Air France-KLM, could also exit its roughly 7% holding in the Kenyan airline, he added.

He said the focus was on securing backing from a financial institution rather than an industry partner like a Gulf carrier, as that might compromise plans to split long-haul flights between Nairobi Jomo Kenyatta and Johannesburg O.R. Tambo, the carriers' respective hubs. A possible scenario would be for SAA’s Johannesburg hub to be the focus for southern-hemisphere operations, such as flights to Australia, while operations to Asia would go through Nairobi. The hubs would be able to maintain some competing flights, and cities such as London would get services from both.

Kilavuka has been increasingly vocal about the planned alliance, whereas SAA has remained more discreet in its disclosures. Asked for comment, SAA Chief Commercial Officer Simon Newton-Smith this week told ch-aviation: "SAA and Kenya Airways are laying the foundation to build a pan-African airline group and welcome potential partners from across the continent, including West Africa to enhance our service offering to our customers". He earlier said the goal was to achieve an extensive reciprocal codeshare partnership by June 2022. By June 2023, the aim is to harmonise schedules and terms and conditions on pricing, pending anti-trust immunity in core markets. Newton-Smith stopped short of confirming an equity exchange: "I can't tell you what that's going to look like right now because that is a little bit further down the line," he said.

He said SAA is focused on rebuilding regional routes, seeing Africa as the area of most potential, and remained cautious about an intercontinental restart.

SAA is still in a transition phase after exiting a lengthy business rescue process in September last year. It is currently managed via a "care-taker" plan with the South African parliament still scrutinising a deal to sell off 51% of the national carrier to the Takatso Consortium comprising South African black empowerment asset firm Harith General Partners and Johannesburg-based ACMI specialist Global Aviation Operations. Asked how plans could be made without the future majority shareholder's input, Newton-Smith said current decisions were backed by the South African government, which would continue to hold a 49% stake in SAA.

Meanwhile, Kenya Airways itself needs to complete a restructuring before the new venture can proceed, Kilavuka acknowledged, though a round of cost cuts should be done by June 2022. A six-month Seabury Securities consultancy contract to help the airline cut costs, improve efficiency, and return to growth ends in September.

The Kenyan government is supporting the process but requires the carrier to reduce its network, fleet size and workforce, Treasury Secretary Ukur Yatani said in his budget speech on April 7. The government recently paved the way for another KES20 billion shilling (USD173.9 million) bailout from the national supplementary budget for 2021/22. The money, likely to be provided as a loan, is to support the restructuring of the airline, provide general working capital, and help stabilise the balance sheet. Kilavuka previously termed it "the last shot at making sure that we have a concrete, measurable, realistic structure that will be successful for the airline".

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