The banks whose loans to Kenya Airways were converted to equity three years ago will have their shareholding changed into Treasury Bonds in the proposed law to nationalise the national carrier. 

The airline, which is 48.9 percent government-owned and 7.8 percent held by Air France-KLM, will buy out the 5.2 percent shares owned by minority shareholders and the 38.1 percent shares owned by a consortium of 11 Kenyan lenders through KQ Lenders Company 2017 Ltd.  

Details of the equity bond conversation – timelines, tenure, and the price for buying out the other shareholders – are yet to emerge.

Kenya Airways’ shares closed trading on Friday, June 26, at KSh2.70, effectively putting the market capitalization at approximately KSh15.96 billion. The shares were acquired at a price of KSh7.78 during the 2017 debt-to-equity restructuring. 

The Government has published a Bill to guide the nationalisation of the national carrier 24 years after it was listed at the bourse.

 National Aviation Management Bill 2020 at a glance

The National Aviation Management Bill proposes the establishment of a non-operating holding company – Kenya Aviation Corporation – that will oversee Kenya Airways, Kenya Aviation Authority, and the proposed Aviation Investments Authority.

Under this new arrangement, both Kenya Airways and Kenya Aviation Authority (KAA) will retain their current functions but will also take up any additional functions as assigned by the Board. On the other hand, the Aviation Investments Authority (AIA) will carry on businesses in relation to aviation activities and any other business related to or ancillary to the aviation sector.

The Kenya Aviation Corporation (KAC) will hold shares in the three operating companies and oversee and where applicable manage the operations of the group including establishing centralised functions to be shared by the group. KAC will also borrow and lend to the subsidiaries and also purchase and dispose of movable and immovable property for the group.

The initial share capital of KQ will be KSh7.48 billion divided into 74,823,452 ordinary shares as may be varied from time to time in accordance with the provisions of the Companies Act, while that of KAA will be KSh66 billion divided into 66 million ordinary shares.

The Corporation will be managed by a Board of Directors consisting of a chairperson appointed by the President, as well as a Chief Executive Officer appointed by the Board. The CEO will responsible for executing the strategic direction of the Group in addition to proving oversight over the management and operations of KQ, KAA, and AIA.

The other Board Members will include the Attorney-General or their representative; National Treasury Cabinet Secretary and Principal Secretary Ministry of Transport, KAC CEO and the Managing Directors of KQ and KAA— as well as four independent non-executive Board members appointed by the Cabinet Secretary.

The Board will appoint a Corporation Secretary from the Institute of Certified Secretaries.

In the organizational structure, the Board will report to the proposed National Civil Aviation Council. This Council will be chaired by the President, with Cabinet Secretaries of Transport, Internal Security, and National Treasury, as well as Attorney General and Kenya Airforce Commander serving as Council Members.

The Council will meet at least once every three months and will be responsible for integrating policies relating to the aviation sector and the other sectors of the economy to enable all the national organs and the sectors of the economy requiring access and support of the civil aviation sector to cooperate and work with the sector to ensure the effective performance of its mandate.

The council will also assess and appraise, the objectives, commitment, and risks to the country in respect of actual and potential civil aviation capabilities.

To minimize exposure to the capital invested in the operating entities, the proposed law also creates Kenya Aviation Corporation Fund administered by the Board. 

The proposed law is expected to help stimulate the aviation sector in Kenya, enhance effectiveness and help return the national carrier to profitability and growth.