Kenya Airways: IFC Strategic Review and Options Report
Drawing upon its experience and discussions with government officials,
Kenya Airways workers and managers, and potential investors, the
IFC drew up and presented for discussion with the Kenya Airways Board of
Directors the goals of Kenya Airways privatization and means for achieving
these goals. The report that formed the basis for the discussion
is summarized below.
Objectives and conditions of Kenya Airways' privatization
The Government of Kenya has multiple objectives for Kenya Airways' privatization.
Key among these are:
Potential participants in the future ownership of Kenya Airways include
strategic partners from the international airline industry, a variety of
Kenyan financial institutions, employees of the company, the general public,
international investors, and the Government itself -- at least at
some level and for some time. Since Kenya Airways is currently technically
bankrupt, strengthening the company's balance sheet through debt restructuring
is a prerequisite for attracting potential investors. Assuming satisfactory
implementation of debt restructuring, potential investors made plain that
each would apply two basic criteria in making an investment decision:
eliminating the drain on Kenya's Treasury which the airline has been in
the past, while ensuring that future capital expenditures for expansion
of service or refleeting will be drawn entirely from private sources acting
on commercial interests;
ensuring that the airline continues to service the public and especially
Kenya's important tourism industry with reliable good quality service;
contributing to the general broadening of the base of asset ownership in
Meeting the first of these depends on creating an ownership structure that
is motivated first and foremost by commercial considerations. The
second can best be achieved by securing a lasting operating and management
agreement with a successful international airline, based on mutual advantage
and objectives. This may be obtainable through a cooperative
commercial relationship or a management contract, but is much more likely
to be secured by an equity partnership.
the extent to which the airline will be run on strict commercial terms,
free from any interference that could detract from its viability
the quality and assuredness of a management team able to build on recent
successes and to provide internationally competitive standards and controls.
Once the Kenya Airways Board of Directors has agreed on the overall
objectives and priorities for the Company's privatization, it could appoint
a small working committee of its members to oversee the entire process
and to provide a point of regular consultation with the International Finance
Corporation, acting as the Board's advisor. The first order of business
would then be to ensure that the airline's debt restructuring proposals
are put into effect without material change as quickly as possible.
Following the Board's decision on the basic elements of the privatization
process, the main elements of the process will be:
Subsequent stages of the privatization will be defined and planned in consultation
between IFC and the privatization working committee of the Board, but are
expected to include further private placements of shares with Kenyan financial
institutions, a specially designed employee stock ownership plan, one or
more public offerings on the Nairobi Stock Exchange, and the possible offering
of shares to international investors.
IFC will produce an Action Plan emphasizing the initial stage of work directed
at securing the equity participation of a strong airline industry partner
on sensible terms. When this plan has been approved, its primary
intentions and guiding principles should be announced to the public.
IFC will then begin the preparation of an Informational Memorandum designed
to elicit proposals, covering specified points and in a format to enable
valid comparisons, from interested prospective partners. At the same
time legal and financial audits will be conducted, with their conclusions
incorporated into the Information Memorandum. IFC will produce a
Valuation Report to the Board indicating the range of values for the Company
that will inform the negotiation process to follow.
An Invitation to Negotiate will be published and interested investors will
be enabled to perform their initial due diligence investigation of Kenya
Airways as an investment proposition. Appropriate data on the Company
will be compiled and made available equally to each serious prospect.
Proposals for participation in the airline will be reviewed and evaluated,
and preliminary negotiations will be conducted with the most attractive
candidates. Final negotiations leading to comprehensive definitive
partnership agreements will culminate in the selection and announcement
of the private partner for Kenya Airways.