Foreign alliance on offer from Kenya

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Kevin O'Toole/LONDON

KENYA AIRWAYS, FRESH from a radical restructuring and now back in profit, is preparing to open discussions with potential foreign-airline partners in the first step towards privatisation.

Foreign airlines will be offered a stake of around 20% in the Kenyan national carrier and, possibly, management control, says Michael Tiller of International Finance (IFC), which has been brought in by the Kenyan Government to oversee the privatisation process.

Invitations have already been sent out to most of the world's major international airline groups asking them to submit partnership proposals, which will be vetted by the privatisation team. Tiller says that serious talks with one or more potential partners are expected to be under way by August.

"Forming a strong strategic alliance is the first and most critical step," says Tiller. No decisions have yet been taken, but British Airways is widely tipped within Kenya as a front runner, given its traditional ties with the country and the fact that its Speedwing consultancy arm, also took on the Kenya Airways restructuring.

Once an airline partner is in place and a new business plan drawn up, the aim is to look for Kenyan institutional investors to take another 20% in the airline, with a further 20% then floated on the Nairobi stock exchange. The remaining 10% would finally be distributed through an employee share- ownership scheme, according to Tiller, although he adds that none of the proposals are "chiseled in granite".

No deadlines have been set for completion of the privatisation, but it could be finalised by 1996. "If we get to the flotation by the end of this year, or the beginning of next, we should be moving along at a very strong pace," says Brian Davies, a former BA executive, who was brought in by Speedwing as managing director in 1992 at the start of the airline's controversial restructuring plan.

Davies admits that the airline was a classic state-owned basket case before the restructuring took place, having turned in 17 years of consecutive losses after being formed out of the break-up of the old East African Airways in 1977.

"The debt burden became absolutely unbearable for the airline and for the Government," says Tiller. He adds that the Kenyan Government was forced to take "some brave and controversial decisions", including replacing the entire board of directors and bringing in outside management.

Over the last three years, Davies says that the airline has undergone a "transformation". Unprofitable routes and aircraft have been shed, leaving the airline with a slimmed-down fleet of three Airbus Industrie A310s, three Fokker 50 turboprops and two Boeing 737-200s on short-term lease. The 737s are candidates for replacement once a new alliance partner is in place, says Davies.

Staff numbers have also been cut back, to less than 2,400: seat costs have fallen by around 30%: and passenger yields have risen by more than 10%, says Davies. The final financial elements were put in place towards the end of 1994, when the Government effectively unburdened the carrier of $125 million -worth of debt.

The net result is that the airline has climbed back from a loss of $30 million in the 1992/3 financial year to make a profit estimated at $14 million for the year just ended. The "conservative" forecast for 1995/6 is for a third $20 million net profit on sales of $166 million.