Budgetary headwinds leave airports with Sh260 billion funding gap

International companies are rushing to take over the Jomo Kenyatta International Airport as the government opens up local aviation infrastructure to the private sector to fill a Sh260 billion financing gap.

The government recently disclosed that state-owned airports across the country face a funding gap of Sh260 billion (Sh2 billion) to sustain their operations.

Half the amount ($1 billion; Sh130 billion) What to expect The country’s main airport, Jomo Kenyatta International Airport (JKIA), needs to become a competitive hub in the region.

The government is unlikely to raise these funds and will therefore rely on public-private partnerships (PPPs) to fill the gap.

Local airports, especially major ones like Chaudhry International Airport and Port Wilson, have been earmarked for upgrading over the years, but little progress has been made.

Even though the growth in the number of passengers and aircraft has outstripped the airport’s capacity, the airport continues to use facilities that have been in use for decades.

For example, K2 International Airport has a capacity of 7.5 million passengers per year, but currently handles around 10 million passengers.

Plans to build the Greenfield terminal, which would have the capacity to handle 20 million passengers a year, were abandoned after the government could not afford the Sh56 billion project.

According to reports, a company has been involved in the controversy, which has been interested in taking over the Chaudhry International Airport (JKIA), upgrading it and operating it for 30 years under the Build-Operate-Transfer (BOT) model.

India’s Adani Airport Holdings has reportedly entered into an agreement with the Kenya Airports Authority (KAA) to lease the Chaudhry International Airport, but the Senate has questioned whether the proposal followed due process.

In the Kenya Aviation Policy, which was recently approved by the Cabinet, the government said it would explore different financing and funding options to accelerate airport expansion.

“We believe that the current infrastructure at most airports is inadequate to handle passenger and cargo operations. As such, it is estimated that KAA’s airport network will require an investment of approximately US$2 billion (Shs256 billion) during the said period, including expansion/compliance as well as major maintenance and replacement investments,” the aviation policy states.

“The Jomo Kenyatta International Airport is the main driver of the above investment plan, costing about $1 billion (Sh128 billion) to increase its existing capacity and meet the forecasted demand.”

The report pointed out that Chaudhry International Airport had handled 8.3 million passengers, while its passenger traffic was only 7.5 million.

“As a result, congestion problems have been experienced at some terminal processing facilities,” the policy said.

KAA has been expanding Terminals 1B and 1C to Increase capacity to 8 More than 1 million passengers are transported every year. However, this is not enough for the growing number of passengers.

The airport also uses temporary facilities, one of which – Terminal 2 – is also due to be scrapped. It was set up as an emergency measure after a fire in 2023. It was supposed to be used for 10 years until the government built a permanent facility.

“The terminal opened in 2015, so it is nearing the end of its life cycle (around 2025).

Terminal 1E is also a temporary facility for international arrivals. Overall, both terminals were in a good state of maintenance, but some critical issues were noted that were primarily of an operational nature.

Specifically, the existing terminal architecture impedes smooth passenger movement and increases connecting time, thereby failing to utilise the potential of Chaudhry International Airport as a hub,” the policy approved by the Cabinet states.

The government should explore different funding and financing options to accelerate airport expansion.

The government is exploring different financing options to accelerate airport expansion. It added that county governments should fund new aviation infrastructure while existing airports should adopt strategies to make them financially viable.

“The government will ensure expansion of major airports, especially Chaudhry International Airport, to facilitate the forecasted traffic growth,” the policy said.

“The private sector is encouraged to build and/or operate new and/or existing airports or airfields under a BOT or PPP framework. Capacity enhancement will focus on improving the service level of airports, especially K2 International Airport, to help the airport become the most important airport in the region and the gateway to East Africa. Existing airports and new airports to be built should be developed and operated on the basis of financial sustainability and viability as much as possible.”

KAA reported revenue of Sh17 billion as of June 2023, with Chaudhry Kazakhstan International Airport contributing the bulk of its revenue, making Chaudhry Kazakhstan International Airport a top target for investors looking to enter the local aviation industry.

But even before the process of bringing in private players to the publicly owned airport and other infrastructure was initiated, Kisii Senator Richard Onyeonka claimed that the Chaudhry K Ivanka International Airport had been leased to an Indian company, Adan Airport Holdings.

The senator said that under the agreement, the company will operate the airport for 30 years while collecting fees from users and paying a concession fee to KAA.

“The committee should provide in its statement the contractual details of the project, setting out the ownership of Adani Commercial, the process for determining the lease rights and the process for the final award of the lease rights.”

The company will upgrade some infrastructure using a BOT model and hand it over to KAA when the concession expires.

Adani operates eight airports in India. While this could give it the credentials to run and operate Chaudhry International Airport, it has been criticized for increasing user fees after taking over, leading to higher airfares.

The larger Adani Group has also courted controversy elsewhere. In March, the U.S. government was investigating whether the company or people associated with it bribed Indian officials to get preferential treatment for energy projects, Bloomberg reported.

National carrier Kenya Airways (KQ) has proposed to acquire K2 in the past. The airline had proposed a privately initiated investment proposal (PIIP) in 2019 to operate K2.

KQ had proposed forming an aviation holding company that would own the airline, the airport and several other key aviation industry companies.

The report noted that this would be similar to other jurisdictions such as Ethiopia, Qatar and the UAE, where airlines and major airports are operated by holding companies, a model that has driven airlines and hubs to global success.

However, this fight is being fought on multiple fronts, including the participation of KAA and members of parliament.

Besides Chaudhry International Airport, the government is looking to extend PPP to other airports, including Wilson Airport, which was one of the busiest in the region but has languished under the weight of its success.

The airport is a hub for many airlines operating light aircraft, and handles a wide range of operations from tourist and small cargo aircraft to local and regional destinations and humanitarian organizations.

“Other related airports such as Wilson and Kisumu are also expected to require significant investments in the short term to increase their existing capacity. In particular, Wilson Airport is expected to require large-scale development works to meet the forecasted air traffic demand,” the policy reads.

Wilson went through several The accident Due to a host of challenges, including years of underinvestment and poor land use, the area has become an island among numerous real estate developments, some of which are high-rises and others of questionable legality.

While Wilson Airport is nearly comparable to K2 in terms of the number of aircraft taking off and landing, its area is only a fraction of K2’s.

It is much busier than most other airports, which have received billions of dollars in investment and attention from civil aviation authorities but sit idle, with only a handful of flights taking off and landing each day. A 2020 KCAA report cited development in the surrounding area as a threat that could hamper efforts to further improve the airport and maximize its potential.

The Korean Civil Aviation Administration pointed out that “land encroachment at Wilson Airport is a safety hazard, and high-rise buildings near the airport are also used for training students.”

A recent report released by the Korean Civil Aviation Administration assessing the current state of the aviation industry noted that “airports are occasionally overlooked in the land-use planning and control process (Wilson Airport is an example).”

The report assesses the civil aviation industry and its growth forecasts and demand over the next decade.