commonly known as Kenya Airways | My Assignment Tutor

BackgroundKenya Airways Ltd., more commonly known as Kenya Airways, is the flagcarrier airline of Kenya. The company was founded in 1977, after the dissolutionof East African Airways. Its head office is located in Embakasi, Nairobi, withits hub at Jomo Kenyatta International Airport.The airline was owned by the Government of Kenya until April 1995, and it wasprivatised in 1996, becoming the first African flag carrier to successfully do so. KenyaAirways is currently a public-private partnership. The largest shareholder is theGovernment of Kenya (48.9%), 38.1% is owned by KQ Lenders Company Ltd. (inturn owned by a consortium of banks). This is followed by KLM, which has a 7.8%stake in the company. The rest of the shares are held by private owners; shares aretraded on the Nairobi Stock Exchange, the Dar es Salaam Stock Exchange, andthe Uganda Securities Exchange.The airline became a member of SkyTeam in June 2010, and is also a member ofthe African Airlines Association since 1977.Early yearsKenya Airways was established by the Kenyan government on 22 January 1977,following the break-up of the East African Community and the consequent demiseof East African Airways (EAA). On 4 February 1977, two Boeing 707–321s leasedfrom British Midland Airways inaugurated operations, serving the Nairobi–Frankfurt–London route. On internal and regional flights, the carrier deployed aircraft formerlyoperated by the EAA consortium, such as one Douglas DC-9-52 and three Fokker F-27-200s. In late 1977, three Boeing 707s were acquired from Northwest Orient. Thefollowing year, the company formed a charter subsidiary named Kenya FlamingoAirlines, which leased aircraft from the parent airline in order to operate internationalpassenger and cargo services. Aer Lingus provided the company with technical andmanagement support in the early years.1980s–1990s: Expansion and privatisationA Kenya Airways Fokker F27-200 at Moi International Airport in 1982.In July 1980 the airline had 2,100 employees and a fleet of three Boeing 707-320Bs,one Boeing 720B, one DC-9-30 and three Fokker F-27-200s. At this time, AddisAbaba, Athens, Bombay, Cairo, Copenhagen, Frankfurt, Jeddah, Kampala, Karachi,Khartoum, London, Lusaka, Mauritius, Mogadishu, Rome, Salisbury, Seychelles andZurich were among the airline’s international destinations, whereas domestic routesradiated from Nairobi to Kisumu, Malindi, Mombasa and Mumias. A Nairobi–Bombaynonstop route was launched in 1982 using Boeing 707-320Bs. A year later, thecompanycommenced erving Tanzania. Flights to Burundi, Malawi and Rwanda werelaunched in 1984. Capacity on the European routes was boosted inNovember 1985 with the incorporation of an Airbus A310-200 leased from Condor. Kilimanjaro was first served in March 1986. That year, theairline ordered two Airbus A310-300s. Kenya Airways was the first African carrier toacquire the type, and they were the first wide-bodies ordered by the company.Funded with a US$20,000,000 (equivalent to $46,648,452 in 2019) loan, the deliveryof these two aircraft took place in May and September 1986. They flew on theKenya–Europe corridor, and permitted Kenya Airways to return the A310-200 to thelessor. In early 1988, the carrier ordered two Fokker 50s; for domestic routes, theairline received the first of these aircraft at the end of the year. Also in 1988, thelease of a third A310-300 was arranged with the International Lease Finance for aten-year period; the aircraft joined the fleet in November 1989. Leased from AnsettWorldwide, the first Boeing 757-200 was received in January 1990, whereas a thirdFokker 50 was acquired in October the same year. By late 1991, two Boeing 737-200s had been leased from Guinness Peat Aviation.A Kenya Airways Airbus A310-300 at Fiumicino Airport in 1999. With registration 5Y-BFT, this particularaircraft entered the fleet in November 1989.In 1986, Sessional Paper Number 1 was published by the Government of Kenya,outlining the country’s need for economic development and growth. The documentstressed the government opinion that the airline would be better off privately owned,thus resulting in the first privatisation attempt. The government named PhilipNdegwa as chairman of the board in 1991, with specific orders to make the airlinea privately owned company. In 1992, the Public Enterprise Reform paper waspublished, giving Kenya Airways priority among national companies in Kenya to beprivatised. Ndegwa was succeeded by Isaac Omolo Okero. In September 1992,Brian Davies, was appointed as the new managing director of the company. Davieshad been previously hired to carry out a study of viability on privatisation, workingfor British Airways’ Speedwing consulting arm. Swissair was the first company toprovide Kenya Airways with privatisation advice. In the fiscal year 1993 to 1994, theairline produced its first profit since the start of commercialisation. In 1994,the International Finance Corporation was appointed to provide assistance in theprivatisation process, which effectively began in 1995. A large aviation industrypartner was sought to acquire 40% of the shares, with another 40% reserved forprivate investors and the government keeping the remaining stake. The governmentwould absorb almost US$90 million in debts and would convertanother US$31 million it provided in loans into equity; after reorganisation, thecompany would have a debt of approximate US$78 million. British Airways,KLM, Lufthansa and South African Airways were among the airlines expressinginterest in taking a stake in Kenya Airways.KLM was awarded the privatisation of the company, which restructured its debts andmade a master corporation agreement with KLM, which bought 26% of the shares,becoming the largest single shareholder since then. Shares were floated to thepublic in March 1996, and the airline started trading on the Nairobi StockExchange. The Government of Kenya kept a 23% stake in the company, and offeredthe remaining 51% to the public; however, non-Kenyan shareholders could hold amaximum 49% share of the airline. Despite 40% of the shares being kept by foreigninvestors following privatisation (including KLM’s 26% stake), top managementpositions were held by Kenyans. Following the takeover, the government of Kenyacapitalised US$70 million, while the airline was awarded a US$15 million loan fromthe International Finance Corporation to modernise its fleet. In a dealworth US$82 million, two Boeing 737-300s were ordered in July 1996.2000s–2010sIn January 2000, the airline experienced its first fatal accident when an Airbus A310that had been bought new in 1986 crashed off Ivory Coast, shortly after taking offfrom Abidjan. By April the same year, the fleet consisted of four Airbus A310-300s, two Boeing 737-200 Advanced and four Boeing 737-300s. At this time thecompany had a staff of 2,780, including 400 engineers, 146 flight crew and 365 cabincrew. From its main hub at Jomo Kenyatta International Airport, scheduled serviceswere operated to Abidjan, Addis Ababa, Amsterdam, Bujumbura, Cairo,Copenhagen, Dar esSalaam, Douala, Dubai, Eldoret, Entebbe/Kampala, Harare, Johannesburg, Karachi,Khartoum, Kigali, Kinshasa, Lagos, Lilongwe, Lokichoggio, London, Lusaka, MaheIsland, Malindi, Mombasa, Mumbai, and Zanzibar. In 2002, an order for three Boeing777-200ERs was placed with Boeing; an additional aircraft of the type was acquiredin November 2005. In March 2006, six Boeing 787-8s were ordered; the first twoexamples would be delivered in 2010 and the rest in 2011. The original Boeing 787order was amended nine months later to include three more aircraft of the type. Thefirst Embraer 190 joined the fleet in December 2010.A Kenya Airways Boeing 767 in 2011.In June 2012 the company announced the issuance of rights worth KSh20 billion,aimed at increasing capital to support expansion plans. Following the allocation ofshares, KLM increased their stake in the company from 26% to 26.73%, while theKenyan government boosted their participation into the company from 23% to29.8%, becoming the largest shareholder. In April 2012, the airline launched a plannamed Project Mawingu (the Swahili word meaning Clouds) to add 24 destinationsby 2021, including the start of services to Australia and North and South America,and expanding its presence in Asia as well; this includes initiating routesto Prague, Ürümqi and Hanoi in Fiscal Year 2020–21 In October 2013, the airlinestated that it will add six new destinations every year, following the delivery of Boeing777s and 787s the carrier has on order.Operational results for fiscal years 2015 and 2016 showed substantial losses. Therapid expansion of the fleet and routes (dubbed “Project Mawingu”) was cited as theprimary cause of the downturn. Fuel-price hedging and the 1996 agreementwith KLM, considered intrusive in the running of the flag carrier, took secondaryblame. Corrective measures were taken to improve the financial and operationalposition of the airline and avert insolvency. The route partnership with KLM wasdeemed profitable thus, kept. However, the parties agreed to amend some featuresof the deal that had a negative effect on KQ -IATA code for Kenya Airways. TwoBoeing B737-700 were sold and five newer, leased airliners were sub-leased toimprove cash flow Efforts to financially re-position the carrier were successful at theend of 2017. In a complex deal, stakeholders agreed to convert close to half a billionUS dollars in loans to equity, changing the ownership structure. The government ofKenya, the biggest lender, saw its holdings rise from 29.8% to 48.9% while that ofKLM was diluted from 26.7% down to 7.8%. A consortium of local banks, through aspecial-purpose vehicle called: “KQ Lenders Company 2017 Ltd.”, ended up with38.1%. The latter entity is obligated with a loan from the above local banks in theamount of US$225 million; this amount, in turn, is guaranteed by the government.The airline’s employees, through a shareholding scheme, and others own theremaining 5.2%.The Government of Kenya issued a guarantee for a furtherUS$525 million debt owed to Import-Export Bank of the United States, financier ofthe newer Boeing planes of its fleet. In a bid to recover their exposure, syndicatedleaseholders and banks unsuccessfully fought these measures to restructure thecarrier’s ownership.An outline of a plan to restore profitability was disclosed in a March 2018 interviewgiven by the CEO and the chairman of the company. The turnaround operation willinclude route expansion, pursuing the high-end segment of the market and, onpartnerships and joint ventures with other airlines. The carrier plans to add up totwenty new destinations in Africa, Europe and Asia in the next five years. Five subleased aircraft are to re-join the fleet by the end of 2019 to facilitate this move.Preparations are underway to roll out an economy-plus class to target the businessand high-end leisure travelers. Direct flights to luxury-tourism destinations in theIndian Ocean are also planned. Talks are underway with South AfricanAirways regarding route-sharing and aircraft-maintenance collaboration; this is theother focus of the turnaround scheme. In December 2018 Kenya Airways revealedplans to start flights between Nairobi and Windhoek, Namibia.Corporate affairsSubsidiaries and associatesLow-cost carrier Jambojet, created in 2013, and African Cargo Handling Limited areboth wholly owned subsidiaries of Kenya Airways.Partly owned companies include Kenya Airfreight Handling Limited, dedicated to thecargo handling of perishable goods (51%-owned) and Tanzanian carrier PrecisionAir (41.23%-owned).Business trendsThe key trends for the Kenya Airways group over recent years are shown below (to31 March until 2017; periods ending 31 December thereafter): 2008200920102011201220132014201520162017(Mar)2017(Dec)2018Turnover(KSh m)60,47171,82970,74385,836107,89798,860106,009110,161116,158106,27780,799114,185Profitbeforetax(EBT)(KSh m)6,526-5,6642,6715,0022,146-10,8 26-4,86 1-29,7 12-26,0 99– 10,202–6,306–7,588Netprofit(KSh m)-29,704–9,956–6,418–7,558Numberofemployees4,2674,1794,1334,3554,8344,0063,9894,0023,8703,5823,54 83,905Numberofpassengers (m)2.72.82.93.13.63.73.74.24.24.53.44.8Passenger loadfactor(%)70.470.866.569.271.768.765.663.668.372.376.277.6Numberofaircraft(at yearend)242827313443475247464745Notes/sou[62][62][62][63][63][61][64][65][66][67][68][69]9mont[70] rceshs[70] Key peopleAs of October 2016, Michael Joseph is the airline’s chairman. Joseph is the formerCEO of Safaricom, the leading telecom operator in Kenya.As of January 2018, Sebastian Mikosz is Kenya Airways Group’s managingdirector and chief executive officer (CEO). Mikosz was formerly CEO of LOT PolishAirlines, and took office on 1 June 2017.As of January 2020, Allan Kilavuka is Kenya Airways Group’s Acting chief executiveofficer (AG CEO). https://www.reuters.com/article/us-kenya-airways-ceo/kenyaairways-names-new-acting-ceo-from-jan-1-idUSKBN1YK0ORDestinationsKenya Airways serves 53 destinations in 41 countries, as of November 2017.AlliancesKLM sponsored Kenya Airways’ SkyTeam candidacy process in mid-2005. InSeptember 2007, Kenya Airways became one of the first official SkyTeam AssociateAirlines and achieved full membership in June 2010. The alliance provides KenyaAirways’ passengers with access to the member airlines’ worldwide network andpassenger facilities.Recent developments and future plansThe first of four converted Boeing 737-300s was delivered to the company inApril 2013; Kenya Airways planned to fly this aircraft on African routes served by theEmbraer 190s, in order to boost cargo capacity. The company took delivery of its firstBoeing 777-300ER in October 2013.Kenya Airways had nine Boeing 787 Dreamliners on order as of April 2011, althoughthe company considered cancelling the order after systematic delays with thedelivery dates. The handover of the first Boeing 787 took place on 4 April 2014. Twodays later, Nairobi–Paris became the first route to be served by the Boeing 787.Kenya Airways phased out its Boeing 777s in May 2015 after the airline made lossesand incurred debts in the previous financial year. The Boeing 777-300ER fleet wasleased to Turkish Airlines in May 2016.LiveryIn 2005, Kenya Airways changed its livery. The four stripes running all through thelength of the fuselage were replaced by the company slogan Pride of Africa, whereasthe KA tail logo was replaced by a styled K encircled with a Q to evoke theairline’s IATA airline code.ServicesFrequent flyer programmesFormer Kenya Airways’ frequent flyer programme Msafiri was merged withKLM’s Flying Dutchman in 1997, which was in turn merged with that of Air Franceand rebranded as Flying Blue in 2005, following the fusion of both companies. GoldElite and Platinum Elite members of the Flying Blue programme are offered the JVLounge. This service is provided to Kenya Airways passengers, and to passengersflying with its partner airlines as well. Simba Lounge is a service provided to KenyaAirways Business passengers only. Both lounges are located at Jomo KenyattaInternational Airport.In-flight entertainmentDifferent in-flight entertainment is available depending upon the aircraft andthe class travelled. The airline’s in-flight magazine is called Msafiri, and is distributedamong the passengers in all aircraft, irrespective of the class.As of October 2014, Kenya Airways has had two fatal accidents and two hullloss accidents.10 July 1988: A Fokker F27-200, registration 5Y-BBS, approached the runway toofast and made a belly landing at Kisumu Airport inbound from Nairobi as Flight 650,skidding down the runway for some 600 m (2,000 ft).11 July 1989: A Boeing 707-320B, registration 5Y-BBK, overran the runway at BoleInternational Airport following a brake failure. The aircraft had departed from thesame airport, and the non-retraction of the landing gear prompted the crew to return.30 January 2000: Flight 431 was a scheduled Abidjan–Lagos–Nairobi service,operated with an Airbus A310-304, registration 5Y-BEN, that plunged intothe Atlantic Ocean and broke up, about a minute after taking off from Abidjan’s FélixHouphouët-Boigny International Airport. There were 179 people aboard, including acrew of ten; most of the occupants were Nigerians. 169 people were killed.5 May 2007: Flight 507, operated by a Boeing 737-800, tail number 5Y-KYA,crashed into a mangrove swamp immediately after takeoff for Nairobi, about 5.5kilometres (3.42 mi) southeast of Douala International Airport. The flight originated inAbidjan, with a stopover in Douala to pick up passengers. All 114 people on board(105 passengers and 9 crew) were killed.

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