The proposed restructuring of Kenya’s aviation sector, involving the nationalisation of Kenya Airways PLC has gained significant momentum with the Government’s recent publication of the National Aviation Management Bill 2020.

The Bill proposes the establishment of the Kenya Aviation Corporation (KAC), a state corporation that will hold 100% of the equity in three new operating entities also to be established by the Act (if passed) and to be known as ‘Kenya Airways’, ‘Kenya Airports Authority’ and ‘Aviation Investment Corporation’. 

While each of the new operating entities will be established by the National Aviation Management Act, each will also be registered as a company under the Companies Act 2015, under a special category of company to be known as “state owned entity” pursuant to proposed amendments to the Companies Act. A state owned entity will be a body corporate with limited liability created by statute with a share capital wholly owned by the Government.  However the application of the Companies Act 2015 to state owned entities will be limited and only to the extent that shall be expressly provided.

The Bill proposes that ‘Kenya Airways’ and ‘Kenya Airports Authority’ will carry on activities currently undertaken by Kenya Airways PLC and the existing Kenya Airports Authority, i.e. the provision of air transport services and the construction and operation of aerodromes, respectively. ‘Aviation Investment Corporation’ will be in the business of aviation related activities, such as aviation training schools, maintenance and repair, aircraft handling, flight catering and aviation medical services.

Of key concern to business partners of Kenya Airways PLC such as aircraft and engine lessors and financiers, is the impact of the proposed nationalisation on the airline’s existing contractual obligations and liabilities.  In this regard the Bill proposes that immediately the Government acquires 100% of the existing equity of Kenya Airways PLC, a transfer of the entire undertaking of Kenya Airways PLC (including all businesses, assets, liabilities and contracts) to ‘Kenya Airways’ shall be effected by way of a statutory vesting order. Pursuant to the vesting order, every contract of Kenya Airways PLC shall be transferred to ‘Kenya Airways’ as if it were made by ‘Kenya Airways’, and without need for any further action or instrument by either party to the contract. The Bill also confirms that outstanding liabilities, legal proceedings, existing judicial orders, licenses and employees of Kenya Airways PLC shall be assumed by ‘Kenya Airways’ without need for further action. 

The Bill seeks to address the airline’s ongoing and severe financial woes through the creation of the Kenya Aviation Corporation Fund, a consolidated fund into which surplus income accruing to each operating entity shall be paid, which the Board of the KAC shall have power to invest as it deems fit, and apply towards the expenditure of the operating entities as may be necessary to execute their respective functions. In this manner, the airline can access surplus funds generated by the Kenya Airports Authority, the Aviation Investment Corporation and other operating entities as may be established by KAC over time.

While the Bill is significant progress towards a sustainable resolution of the airline’s challenges, there remain hurdles for this proposal to become reality, including the Government buy-out of the existing shareholders of Kenya Airways PLC (Air France KLM, the lenders which converted their debt to a significant equity stake a few years ago and minority shareholders), as well the passage of the Bill by the National Assembly.

For more information about the National Aviation Management Bill 2020 please get in touch with Suzanne Muthaura on smuthaura@mman.co.ke.