Kenya Airways has been churning out massive losses, raising questions about its future. The government is moving to rescue the airline by taking control of it. Kenya Airways owns Jambojet, which targets low-cost travellers.
Kenya Airways has moved to suspend trading in its shares on the Nairobi Securities Exchange for three months. This comes as the government works on swallowing the airline. The suspension of trading in Kenya Airways shares for three months signals the Uhuru administration aims to complete the takeover of the national airline by October. Kenya Airways stock would delist from the exchange once the government completes the takeover.
The government is racing to rescue Kenya Airways, whose struggles have been made worse by the outbreak of the coronavirus disease that has resulted in lockdown of parts of the country and halt in passenger flights.
The Uhuru administration proposed government swallowing Kenya Airways as a way to revive the national airline. The legal framework for Kenya Airways takeover by the government is currently undergoing legislative process in Parliament.
The trading halt means investors will not be able to buy or sell Kenya Airways shares for the next three months. The last trading day for Kenya Airways shares was July 2, when they closed at Ksh3.83 after rising 6.4% for the day.
Kenya Airways shares have been on fire this year. For example, the shares have gained 87% since the beginning of the year and nearly tripled in the past three months. In contrast, the NSE All-Share Index, which tracks the performance of all stocks in the country, is down 16% this year and has edged up less than 1% in the past three months.
Kenya Airways has been in losses for a long time. For example, it made a loss of Ksh13 billion in 2019, which nearly doubling from 2018. But investors have piled into Kenya Airways stock nonetheless, anticipating big government payout when it takes over the company.
Government to buy out Kenya Airways shareholders
The government owns 48.9% of Kenya Airways. Air France-KLM owns 7.8% and a group of banks that extended loans to Kenya Airways and have not been repaid own 38.1% of the company. Public investors own the remaining stake.
Kenya Airways takeover process will involve the government buying out other shareholders. For the government the sprinting Kenya Airways shares meant rising cost of taking over the company. Therefore, the halt in trading should help stop further upswing in Kenya Airways share price and the cost of bringing it under government control.
In addition to its main international flights business, Kenya Airways owns the domestic and regional airline brand Jambojet. Jambojet started operations in 2014 and targets budget travellers.
The Uhuru administration is setting up an aviation corporation that would house Kenya Airways alongside airports operator Kenya Airports Authority.
