KQ, Why JKIA? - www.taxkenya.com

Kenya Airways Ltd (KQ) is a public–private partnership. The shareholders are the government and the public. At the same time, Jomo Kenyatta International Airport (JKIA) is a public property owned and operated by the Kenya Airports Authority (KAA), a government parastatal. The people of Kenya own the airport.

Note: This article was written in 2019 as is. Since then, a lot has changed. It is for historical purposes.

Every single development at JKIA has been funded using taxpayers’ money. The funding is from taxpayers’ money from the exchequer or loans that will be paid using taxpayers’ money.

Hence, JKIA is 100% owned by the people of Kenya.

Though Kenya Airways Ltd operates Kenya’s national carrier with the flying slogan “Pride of Africa”, it is not wholly owned by the Kenyan government on behalf of the Kenyan people or the Kenyan people directly as shareholders.

It has been a partnership between the public and private sectors since its privatization.

However, JKIA is wholly owned by the Kenyan people and managed by KAA, which also oversees all other government airports and public assets in the aviation industry on behalf of the citizens.

KQ was initially 100% owned by the government (using taxpayers’ money) but was privatized in 1996. Thus, it became a public-private partnership. Its shares are traded on the Nairobi Securities Exchange, Uganda Securities Exchange, and Dar es Salaam Stock Exchange.

Shareholding

KQ’s shareholding is spread across the public and private sectors. The Kenyan government owns 48.9%, while KQ’s creditors, a consortium of banks under KQ Lenders Company 2017 Ltd, own 38.1%.

In addition, KLM (a strategic partner) owns 7.8% while the general public owns 5.2%. Therefore, KQ has substantial private shareholders, including some corporate entities, as well as individual shareholders.

Subsidiaries

KQ holds shares in other companies. KQ owns 100% African Cargo Handling Limited and Jambojet. In addition, KQ has a partial stake in Kenya Airfreight Handling Limited, holding a 51% stake, and Precision Air (a Tanzanian carrier), with a 41.23% stake.

Revenue Growth

KQ is in the business of human and cargo air transport. The company has not been doing well business-wise. The following figures represent the company’s turnover and profit before tax (PBT) growth for the years of income 2012 to 2017, with 2012 used as the base year.

Year Turnover PBT

2013 – 8.38 % – 404.47%

2014 7.23 % 55.10%

2015 3.92 % – 511.23 %

2016 5.44 % 12.16%

2017 -8.51 % 60.91%

Note: We assume that these figures are not from consolidated accounts and only represent KQ operations, excluding its subsidiaries. We are using the figure as presented to the public.

According to the data, KQ’s turnover declined by 8.38% in 2013, but recorded positive growth between 2014 and 2016, before reverting to a loss-making record, with an 8.51% decline in 2017.

From the PBT data for the years 2013 and 2015, it is apparent that KQ had substantial expenses that negatively impacted its profitability. In 2016 and 2017, the company reported increased PBT, indicating that it was effectively managing its expense side of the P&L accounts.

From this data (which is from public sources), KQ is a company not doing well, but it is a situation that can be solved. Some challenges faced by the company include volatile fuel price movements, recent political crises in the country, intense competition from low-cost airlines, and the ongoing, costly restructuring process. These are challenges faced by almost all companies in the aviation sector.

Currently, KQ remains a loss-making organization that is not expected to pay any corporate income tax or dividends. In essence, it is a company that is financially struggling.

Kenya Airports Authority

Kenya Airports Authority (KAA) manages Jomo Kenyatta International Airport (JKIA), Moi International Airport, Kisumu International Airport, Eldoret International Airport, Wilson Airport, Malindi Airport, and any other airport or airstrip in the country.

This is in addition to managing other small airports. KAA, being a governmental parastatal, its financial reports are not available to the public.

However, in August 2018, the Standard Newspaper gave a glimpse of KAA’s performance in an article on KAA’s report on the Airports’ performance between 2016 and 2017 for the three main airports.

According to the article, there was an 8.21% increase in passengers at JKIA, while aircraft landings increased by 3.17%. At Moi International Airport, passenger numbers increased by 16%, while the number of aircraft landing also rose.

At Kisumu International Airport, passenger numbers increased by 37.7%, while aircraft landings rose by 64.1%. In Eldoret International Airport, passengers increased by 10% while flight landings increased by 14.2%.

From the available data, we can infer that KAA is reporting profits, as evidenced by the growth in the number of passengers and aircraft flight landings, particularly at JKIA.

KAA, being a parastatal, has built all its facilities using public funds – taxpayers’ money. In addition, any KAA’s loans are guaranteed and are paid for by the government, which is funded by tax money.

Hence, JKIA is a publicly funded entity that belongs to the people of Kenya.

The deal is not great!

According to media reports, KQ has proposed taking over JKIA. This proposal has several flaws.

First, it is ironic that a loss-making organization is taking over the operations of a profit-making organization. Common sense, including business sense, dictates that a profit-making one should take over a loss-making organization. A limping man needs help.

Second, KAA is operating profitably. Therefore, it should be the one to take over KQ and turn it into a profitable venture.

Third, handing over JKIA, a public entity, to a loss-making organization like KQ is tantamount to awarding mediocrity. KQ was making profits, and it is publicly known (from media posts) what happened to the company that led to its current sorry state.

Strategic reorganization in KQ should not include awarding the company public property, such as JKIA.

Fourth, KQ’s business is in passenger and cargo transport and not airport management. If the KQ is unable to handle its current business, how will it manage the airports? The management at KQ should focus on restructuring the company to achieve profitability. And it is doable.

Fifth, KQ is one of the airlines that operate in JKIA. Handing over JKIA to it will give the company an undue advantage over the other companies, thus creating unfair competition.

Sixth, JKIA is a public entity. If the government owned 100% of KQ shares, taking over JKIA would not be a problem. However, the government only owns 48.9% of KQ’s shares. This means that the private sector owns 51.1% of the shares. Taking over JKIA means that the 51.1% shareholder will now have (indirectly) their fingers on the profits of JKIA.

Why would the Kenyan government hand over JKIA to KQ?

Seventh, in Kenya, procedures have been established for handling public properties and transferring them to the private sector through privatization. Since the government has not announced to the Kenyan public that it is privatizing JKIA, is it doing so through the back door? This is in contravention of the Privatization Act (2015).

The questions

It is a fact that both KQ and JKIA have foreigners in their top management. It is instructive that it is during their tenure that KQ made the move to take over JKIA.

It is a fact that KQ Lenders Company 2017 Ltd., which is apparently a consortium of banks, owns 38.1%, while KLM (a strategic partner) owns 7.8%. This begs the following questions:

Who is interested in taking over Kenyan public property through the back door and why?
Is KQ under receivership?
Are the banks under KQ Lenders Company 2017 Ltd pressurizing the government for their money, and the government, finding itself with no money, is offering JKIA?
What exactly is the deal?
The bottom line – how will the deal benefit the owners of JKIA, that is, the Kenyan people?

Conclusion

The government’s shareholding in KQ and KAA, including all airports and other properties in the aviation industry that it manages, is a public asset funded by taxpayers’ money.

The government of the day has no right to hand over public properties without seeking approval from the owners, who in this case are the Kenyan public.

If this happens in the years ahead, there will be questions. And this may end up like the Malaysian operations.

KQ, being one of the assets that Kenyan citizens have invested in either directly or through our government, we wish the team at the Pride of Africa the best in business.

Note:

Although this website focuses on tax matters, taxation encompasses more than just paying taxes. The tax that is paid is used by the government of the day for recurrent and development expenditures.

The government does not have its own money, and all developments are done on behalf of the taxpayers. Therefore, it is not enough for us to only tell you how to pay tax and shy away from informing you how those taxes are used.

Read More Articles – HERE

For tax consultancy and investment advisory – HERE

Tax Interview Quiz

This quiz will test your understanding of why a tax commissioner asks specific questions in any tax review. For taxpayers to improve tax compliance.

1 / 21

#1. Why will the tax commissioner ask, “Are the company directors citizens with tax residency in the country?”

a) To determine if the directors qualify for a government tax incentive.

b) To confirm that the directors’ income is subject to local tax laws. *

c) To gather information for immigration status updates.

2 / 21

#2. Why will the tax commissioner ask, “Are the directors also shareholders?”

a) To determine if dividend distributions are being properly taxed. *

b) To assess potential conflicts of interest in company management.

c) To ensure the directors are actively involved in company operations.

3 / 21

#3. Why will the tax commissioner ask, “What are the primary sources of the company’s income?”

a) To understand the nature of the company's operations for accurate tax assessment.

b) To prepare a case for recommending industry-specific tax exemptions.

c) To decide whether the company qualifies for government grants.

4 / 21

#4. Why will the tax commissioner ask, “What are the main expenses in the company?”

a) To evaluate the company’s spending efficiency.

b) To determine eligibility for cost-saving tax credits.

c) To identify any unusual expenses that could indicate tax evasion.

5 / 21

#5. Why will the tax commissioner ask, “Does the company have any loans from its shareholders?”

a) To check if interest on shareholder loans is being properly recorded for tax purposes.

b) To identify possible internal cash flow issues in the company.

c) To understand shareholder contributions to company growth.

6 / 21

#6. Why will the tax commissioner ask, “What are the current VAT balances?”

a) To assess if the company qualifies for a VAT refund.

b) To verify if the company is accurately remitting VAT based on taxable sales.

c) To provide the company with updated VAT compliance guidelines.

7 / 21

#7. Why will the tax commissioner ask, “Has the company sold any tender documents?”

a) To assess the company’s involvement in the public procurement sector.

b) To evaluate the company’s customer base.

c) To determine if there are unreported income streams.

8 / 21

#8. Why will the tax commissioner ask, “Does the company deduct VAT incurred when servicing non-commercial vehicles?

a) To analyze the company’s fleet expenses.

b) To ensure VAT deductions are compliant with tax laws.

c) To assess if the company qualifies for VAT relief on vehicle servicing.

9 / 21

#9. Why will the tax commissioner ask, “Does the company provide staff welfare?”

a) To evaluate if employee benefits are taxable as per regulations.

b) To assess the company’s support for its employees.

c) To check if welfare programs are compliant with labour laws.

10 / 21

#10. Why will the tax commissioner ask, “Who are the company directors?”

a) To conduct background checks on the directors.

b) To assess the directors' expertise for policy recommendations.

c) To confirm the individuals responsible for the company’s tax obligations

11 / 21

#11. Why will the tax commissioner ask, “Does the company subject all allowances to PAYE?”

a) To verify if allowances are being properly taxed as income.

b) To ensure employee benefits are in line with market standards.

c) To determine if the company qualifies for PAYE exemptions.

12 / 21

#12. Why will the tax commissioner ask, “Does the company maintain the director’s current account?”

a) To confirm if director withdrawals are appropriately documented for tax.

b) To track the director’s involvement in company financials.

c) To ensure the company’s compliance with corporate governance.

13 / 21

#13. Why will the tax commissioner ask, “Has the company paid any legal fees?”

a) To determine the company’s compliance with legal standards.

b) To understand the company's level of legal risk.

c) To check if legal fees are correctly categorized as business expenses for tax purposes.

14 / 21

#14. Why will the tax commissioner ask, “What other business does the company transact?”

a) To identify if there are undeclared income sources.

b) To explore opportunities for expanding business operations.

c) To assess the company’s potential for partnerships.

15 / 21

#15. Why will the tax commissioner ask, “How often is the bank reconciliation done?”

a) To evaluate the company’s financial management practices.

b) To confirm that bank transactions are regularly monitored for tax accuracy.

c) To ensure funds are secure and properly accounted for.

16 / 21

#16. Why will the tax commissioner ask, “What are the receivables in the current accounts?”

a) To ensure receivables are reported as taxable income where applicable.

b) To help the company recover overdue payments.

c) To assess the company’s credit policy.

17 / 21

#17. Why will the tax commissioner ask, “Does the company maintain stock records?”

a) To assist the company in managing inventory more effectively.

b) To confirm that stock values are accurately reported for tax purposes.

c) To determine eligibility for stock management tax incentives.

18 / 21

#18. Why will the tax commissioner ask, “Has the company applied for investment deductions?”

a) To ensure the company is claiming only eligible deductions.

b) To encourage the company to apply for more deductions.

c) To advise the company on future investment opportunities.

19 / 21

#19. Why will the tax commissioner ask, “Has the company remitted all the excise duty?”

a) To determine if the company qualifies for excise duty exemptions.

b) To verify compliance with excise duty regulations.

c) To understand the company’s excise duty liabilities.

20 / 21

#19. Why will the tax commissioner ask, “Has the company remitted all the excise duty?”

a) To determine if the company qualifies for excise duty exemptions.

b) To verify compliance with excise duty regulations.

c) To understand the company’s excise duty liabilities.

21 / 21

#20. Why will the tax commissioner ask, “Where is the company’s Personal Identification Number (PIN) base?”

a) To confirm the tax jurisdiction under which the company operates.

b) To locate the company’s headquarters.

c) To update the company’s address on official records.

Your score is

The average score is 32%

Note: This article was written in 2019 as is. Since then, a lot has changed. It is for historical purposes. <img loading="lazy" alt="">

Shareholding

Subsidiaries

Revenue Growth

Kenya Airports Authority

The deal is not great!

The questions

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Note: This article was written in 2019 as is. Since then, a lot has changed. It is for historical purposes.

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