< Reveal sidebar

A Kenya Airways Boeing 787-8 Dreamlliner resting under the JFK Airport air traffic control tower for the first time. (Photo: Tom Pallini)

Airline Privatization: Partial Privatization (Part 4)

Throughout this series surrounding airline privatization we have explored numerous ways airlines can join the public markets, such as public issuance of shares, trade sales, and gradual privatization. We’ve gone through a large chunk of the methods many airlines have gone through when going public but there still are a few more things to go through.

Partial Privatization of Kenya Airways

In the previous parts of the series we discussed how an airline goes from being a government controlled entity to an entirely public entity that is controlled by shareholders. However, in the fourth part to this series we’ll discuss what happens when an airline doesn’t want to go fully public, instead it just wants to have a partial privatization.

This is usually done through methods discussed earlier in the series such as issuing public shares or making a trade sale. Usually the entire airline won’t be put into public markets, a part will still remain in government hands.

Kenya Airways is a great example of this. The Kenyan government used a two pronged approach similar to what Qantas did in terms of a trade sale and public share issuance. KLM acquired 26 percent of Kenya Airways shares in December 1995. Shortly afterwards a public offering took place in March 1996 with the issuance of 34 percent of Kenya Airways’ shares on the Nairobi stock exchange.

14 percent of shares were put on sale internationally and 3 percent was allocated to employees. This left the Kenyan government with slightly less than a quarter of the airline in its possession. As with the trend we’ve seen in many other privatizations, foreign ownership limits were also implemented. This time the limit being a maximum of 40 percent.

KLM Investment

The sale of a portion of Kenya Airways to KLM is notable here since it has fostered considerable cooperation between the two airlines that has led to strong partnerships such as the Kenya Airways and KLM joint venture that was established in 1995.

This provided seamless travel experiences across the two carriers between Amsterdam and Nairobi. KLM saw Nairobi as being a strategic location to transfer passengers to Kenya Airways, from there passengers can connect to many places across Sub-Saharan Africa.

This purchase also came at a cost for Kenya Airways. KLM was appointed two board seats at Kenya Airways. This increases the involvement of KLM in the airline, which for some is a good thing and for others a bad thing.

In November 2017, after three years of consecutive losses the Kenyan government and lenders agreed to convert $405.3 million of the airline’s debt into equity which gave the state a controlling share and also diluting the ownership stake of other shareholders, including KLM.

This comes at a time where some African airlines are considering banding together in the face of mounting competition. South African Airways, Kenya Airways, Air Mauritus, and RwandAir are in talks to create an alliance to fight off competition and foster connectivity across the African continent that continues to remain stifled.

Hemal Gosai
Hemal Gosai
Related Stories

Aeroméxico To Increase Its Operations in October

The month of October will see Aeroméxico operate about 30% more international flights compared to September. With this increase in its…

Lufthansa Introduces 15 New Leisure Destinations in Europe, Africa and Asia for Summer 2021

Lufthansa anticipates a significant increase in its passengers’ leisure travel appetite during the summer of 2021 and meets their expectations…

United Airlines to Employ FlightAware’s Predictive Data

FlightAware announced this week that it has partnered with United Airlines to integrate its Predictive Data Tool into the airline…