Kenya & Cape Verde in Focus on the African Continent

For several reasons attention is focused on Kenya presently, where Kenya Airways, in a ‘Privately Initiated Investment Proposal’ (PIIP) offered to “take over” the operation of Nairobi Jomo Kenyatta International Airport (NJKIA) from the Kenya Airports Authority, last year.

Kenya Airways is expected to establish a holding company to operate NJKIA under the terms of a 30-year concession contract with the Kenya Airports Authority (KAA) with all NJKIA personnel being employed by the holding company. The objective is to allow both the airport and the airline to compete better with Gulf airlines and the aggressive Ethiopian Airlines on a level playing field.

To avoid legal issues, the decision is to be effected through a concession with Kenya Airways designated as the private party and Kenya Airports Authority as the contracting authority. Under the  new arrangement, NJKIA – currently under the sole management of the State-owned  KAA, and with estimated annual revenues of KES7 billion (USD70 million) – is to be owned and managed by a holding company that will, in turn, be 100% owned by Kenya Airways under the concession agreement.

KAA would receive concession fees from Kenya Airways but face the loss of approximately 90% of its revenues, which have been generated by the airport. Furthermore, rival airlines may not take kindly to any perceived favouritism falling to Kenya Airways. NJKIA is dependent on Kenya Airways, which has over half of all seat capacity there, but the airport has been losing business to competing hubs in Africa (e.g. Addis Ababa) as well as in the Middle East.

Kenya Airways appointed a U.S. law firm to guide it through the transaction in February 2019.

Strong opposition from trades unions appears to have caused a rethink and in the same month Kenya Airways provided “clarifications” on the airline’s proposal to take over the operation of the airport, saying, “Our intention is not to buy or merge NJKIA but to have a co-association operator deal, meaning the land and buildings will remain owned by KAA”, adding, “The word merger or acquisition is not applicable in this matter”.  Since then, the Parliamentary Transport Committee has stated, “There will be no marriage between Kenya Airways and KAA…How can KAA, which is a money making company, merge with Kenya Airways, which is a money losing company? Again, why would a public entity merge with a private entity? As Parliament and as a committee we have said it will not happen”.

Airport privatisation is often proposed in Africa (it has been ongoing for the four main Nigerian airports for over two years) but rarely results in a happy compromise and what is becoming a debacle in Kenya now as well as Nigeria goes some way to explaining why, and why European and Asian investors remain thin on the ground.

The Cape Verde government announced that concessionaires would be sought for the seven airports in the archipelago once the partial sale of the national airline TACV to Icelandair has been completed. Icelandair intends to replicate its Keflavik-based hub and spoke system with Cape Verde at the apex of Africa-South America and Europe-South America connecting services, something which TACV was unable to achieve on its own.

But that would require the selection of a hub. The leading contenders are Sal, the busiest airport, and Praia, the capital, on a different island.

There are other complications. One island airport (Boa Vista) exists entirely because of tourist demand while others rely almost solely on local travel. The country’s main commercial city is on another island again. Some of the airports are very small and the busiest, Sal, only managed 1.2 million passengers in 2018.

An entirely new airport to handle this envisaged hub capability has been discussed but never went beyond discussion.

A highly specialised operator would be needed here and the government is unlikely to allow any cherry-picking.

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