The financial impact of privatization on Kenya Airways

Abstract

Privatization of State-Owned Enterprises (SOE's) has been quite a challenge to the Kenya Government over the years. Whereas there has been public outcry to privatize all SOE's due heavy taxation required to barely keep them afloat, the Government has, on the other hand, justified clinging to a majority in the name of strategic importance. There is; however, a limit to which the public patience could be stretched by paying for invincible services. This study sought to establish the financial impact of privatization on Kenya Airways. It entailed examining financial data of Kenya Airways for five years before and after privatization and subsequently undertaking a thorough ratio analysis to compare trends in the two periods. Data for the pre-privatization period was obtained from the Prospectus issued at the time when the Public was invited to subscribe to the shares of Kenya Airways whereas post-privatization data was obtained from the Company's Published Financial ~tements. The analysis revealed that privatization did improve the financial position of Kenya Airways as portrayed by the following ratios among others: - 1. Profitability of the Airline significantly improved after privatization, with gross profit being recorded for the five years and even raising to a peak of 39.1% as compared to negative results during the entire pre-privatization period. 2. Positive Earnings per share (EPS) and Dividends were reported for four out of the five years after privatization whereas negative EPS and nil dividends were reported during pre-privatization period. 3. Return on assets was positive during post-privatization period but negative during the pre-privatization period. 4. Fixed interest cover was greater than one during the post-privatization period but negative for the entire pre-privatization period. 5. The acid test ratio was greater than one for the five-year post-privatization period whereas it was less than one during the pre-privatization period.