Kenya Airways' successful privatisation is raising hopes for a renaissance in African aviation

Kevin O'Toole/LONDON

BRIAN DAVIES admits that it was an opportunity that no self-respecting aviation consultant could have resisted. After being called in to lead a six-week study on how Kenya Airways should work towards privatisation, he was invited back, much to his surprise, to put the recommendations into action.

He agreed to stay on as managing director and, three years later, is close to completing his mission. Barring unforeseen hiccups, of which there have been surprisingly few, the airline will launch its flotation on the Nairobi stock exchange on 25 March.

By the time, the share offer closes in mid-April, Kenya Airways will have become the first of Africa's flag carriers, to have made the transition from ailing state-owned basket case to profitable private enterprise. Other governments and their flag carriers throughout the region are watching the experiment with interest.

In 1992, when Davies first arrived at the airline, things had looked very different. Kenya Airways was in many ways a textbook example of a failing post-colonial African flag carrier. It had emerged in 1977, as the Kenyan part of East African Airways, a relatively well-respected joint venture, which was broken up, following the political upheavals in the region.

The new Kenya Airways went on to perform spectacularly badly, showing 16 straight years of losses and mounting debts. When world passenger traffic collapsed in 1991, the airline had to borrow to stay alive.

By 1992, a new wind of realism was sweeping through Kenyan politics and, when privatisation plans were drawn up, Kenya Airways topped the 270-strong list.

The airline's new commercially minded board of directors invited Speedwing, the consulting arm of British Airways, to draw up a strategy to put the carrier back on track. The consultancy called Davies.

In fact, Davies had started his career in engineering with BA, but, after 25 years, he moved to become operations director at the ultimately ill-fated Air Europe as operations director. Since the airline's demise, he has become a consultant, advising on the Philippine Airlines privatisation and the overhaul at Ansett, among others.

Once installed at Kenyan Airways, he set about overhauling the airline's muddled fleet and route structure, cutting back on staff and, above all, raising dismal levels of customer service.

Improvement has come apace. Disenchanted passengers who had deserted the carrier in droves are gradually being enticed back, in particular on the key Nairobi-London route, where Davies believes that the carrier is now holding its own.

Load factors across the leaner network have been running at close to 70%, where once they languished at below 60%. More importantly, yields have risen steadily, growing by another 10% last year, while seat costs are down by around 30%.

The airline's financial performance has been transformed. It is now approaching, a third year of trading profits, with margins as high as any in the industry. The budget for the latest financial year to the end of March is to hit net profits of $22 million on sales of $166 million. In fact, there is every sign that the airline will do better.

True, the return to profitability has been helped by the Government's decision to unburden its flag carrier of around $120 million in debts. The state could yet emerge showing a profit from the deal as the privatisation proceeds flow.

The first phase of the plan was completed at the start of the year, when KLM was selected from a shortlist as a strategic-alliance partner, taking a 26% holding for $26 million.

Davies says that, ultimately, KLM was a clear winner, providing the most constructive partnership offer and the highest bid price. "There was no dilemma," he says.

The operational success of KLM's existing partnerships with Air UK and Northwest Airlines (despite the recent boardroom row) persuaded Kenya that the Netherlands carrier offered access to a worldwide network.

The alliance also holds out the possibility of developing Nairobi's fledgling role as an African hub. Exactly how the plan will work is still under discussion, but Davies is keen to see Nairobi become a main access point for KLM, which now serves 13 African cities direct. He points out that Nairobi already offers services to 27 points outside Africa and 35 within.

Kenyan Airways' intercontinental ambitions, based on three Airbus A310s, are more tightly limited, still concentrated around services to London, although there may be options to tie up with the new alliance partners, such as with Northwest at Rome, in Italy. "Every time you open the map you see new linkages," says Davies.

Fleet changes, too, are pending discussions with KLM, although replacement of the two-leased Boeing 737-200s, possibly with a regional-aircraft fleet, is high on the agenda.

The next hurdle is the stock-exchange launch on 25 March. That will see around one-third of the shares go to Kenyan buyers, with another 14% earmarked, for foreign institutions and another 3% for staff. By the end, the Kenyan Government will be left with a minority.

The prospect is already fuelling optimism that African aviation may be in the process of extracting itself from the mire of the region's politics. "For the first time, there are some very positive signs that its going to happen," Davies says, citing the "explosive" growth which has followed the opening up of Southern Africa.

Air Zimbabwe has promised privatisation and Ghana Air has called in Speedwing to look at privatisation, while foreign investors have been invited to replace failed flag carriers in Zaire and Zambia. Davies warns, that the Kenya Airways experience or privatisation in general, holds no universal formula for success.

If there are broad lessons to be learned from the Kenya Airways success story, however, they appear to be these. Firstly, have the unequivocal support of Government. Secondly, make the privatisation process as transparent as possible. Thirdly, take plenty of time to make sure that the carrier is ready for sale.

For his part, Davies is now a confirmed African aviation enthusiast. What started as a six-week assignment has already become a three-year posting and he has now agreed to stay on for another two years.

Source: Flight International