Preparatory activities required for the introduction of strategic investors include:

• continued business improvements
• legal and financial audits of the Company to identify and substantive legal or financial issues
• pre-marketing efforts designed to raise investor awareness
• preparation of the Information Memorandum describing the Company and the opportunities it presents to potential investors
• preparation of the Valuation Report, providing a range of values for the Company and its assets

In July 1994, Government approved in principle a debt restructuring proposal which would substantially reduce the Company's debt obligations and enable continued commercial operation.  Implementation of the next steps for the debt restructuring must be substantially completed before the privatization process can move forward.  These steps include:

• formal communication of the implementation details of the approved conversion of debt to equity
• formal notice from the Government and the Company to relevant lenders of the decision in principle
• discussions and agreement with lenders regarding the terms of Government's assumption of part of Kenya Airways' debt
• signing of the debt assumption agreements by Government and lender

Once the debt assumption steps are substantially implemented, work can begin on the initial sale of shares.  This will start with the issuance to potential airlines industry partners of an invitation to negotiate.  The Company's public awareness campaign and IFC's marketing activities will increase in size and scope.  A data room will be established for controlled use by prospective investors who have signed confidentiality agreements.

Proposals will be prepared and submitted by prospective investors according to the requirements set forth in the invitation to negotiate.  Evaluation of the proposals will take place according to the announced criteria.  If deemed appropriate by the Shareholder, negotiations may be conducted with one or more bidders with the objective of improving the clarity, quality and/or value to Kenya of the offers.  From this process, the successful "best and final" proposal will be selected.

The selected investor will then conduct due diligence analyses, which involves independent verification of relevant financial, legal, and regulatory issues.  The selected investor will then enter into exclusive and final negotiations.

Negotiation and signing of final legal documents will depend on the number and complexity of shareholder issues to be resolved.  Experience shows that this process may take at least three months or even longer.

Shortly after the successful introduction of an airline industry partner, an invitation will be issued to Kenyan financial institutions to participate in Kenya Airways' shareholding.  Review, evaluation, and conclusion of proposals from this source will follow the same principles of openness and fairness established in the initial offering.  Next an Employee Stock Ownership Plan (ESOP) will be developed, and finally, when the basic new ownership and management structures are in place, a public offering will be launched on the Nairobi Stock Exchange.