The Kenyan gov’t bails out Kenya Airways.
Kenya’s government has announced that it would pay more than $800 million of Kenya Airways’ debt and provide roughly $500 million in budget assistance over the next two years. Economists are divided on whether the government is making the correct decision.
The government just announced that it would provide assistance to the airlines for the next two years in order for them to stay competitive.
The government has asked the International Monetary Support for $800 million to fund the rescue. The government owns 49% of the airline.
Samuel Nyandemo is an economics instructor at the University of Nairobi. He believes the government has no business assisting enterprises that are losing money.
“It is not the government’s job to finance non-profit organizations,” Nyandemo stated. “Instead, the government should attempt to privatize those entities that are unable to stand on their own. So it’s defeatist for the government to borrow money and begin supporting a body like Kenya Airways, which has a monopoly in the market due to mismanagement.”
Kenya Airways Chief Executive Officer Allan Kilavuka said in September that the airline had a net loss of $100 million between January and June. In the same time in 2020, the corporation lost $130 million.
COVID-19-related travel restrictions and flight disruptions have had an impact on the airline.
According to James Shikwati, a Nairobi-based economist, the airline is eligible for government assistance because to the financial difficulties imposed by the epidemic.
“I believe the flexibility of the issues posed by COVID makes sense if you keep it alive using all the tools available to guarantee it returns to profitability.” “Shikwati said.
Kenya Airways’ financial problems first surfaced in 2012.
According to Nyandemo, the airline is being mishandled.
“Kenya Airways employs an excessive number of people. Pilots are being overpaid “Nyandemo said this. “All of this has resulted in inefficiencies in terms of operating costs, which is why Kenya Airways is unable to break even. Aside from that, there is blatant mismanagement.”
The Kenyan government has been pressing for the airline’s nationalization, but parliament has so far resisted the move.
According to the International Monetary Fund, the government has shelved plans to completely nationalize the airline.
Shikwati believes the airline may be profitable if properly managed.
“Kenya Airways and Ethiopian Airlines have always competed,” stated Shikwati. “Kenya chose privatization as a means of making the airline competitive in the 1980s. Ethiopia, I believe, chose to be heavily backed by the national government at the time. So, when you compare it to the facts of the situation, generating a mixed bag, in my opinion, is not an issue. It should be something that will keep the airline competitive.”
Some economists are urging the airline to reorganize its operations, reduce its workforce, negotiate new leases and contracts, and rely on government assistance and authority.