Sunday, April 15, 2012

Investors could file lawsuits over airport employees’ protest

The aviation industry was recently under the spotlight when Kenya Airports Authority (KAA) workers went on strike.  Some of the employees have now returned to work and those who had not reported back by last week were summarily dismissed for absenteeism.

The strike, according to financial analysts, is likely to have a great impact on the aviation industry.

Kenya Airways (KQ) launched its rights issue recently to raise additional capital for expansion. The rights issue has attracted many investors, with most betting on the airline’s expansion plans. The industry is also growing.

Some of the evidence of this is the expansion of Kisumu Airport and plans to build more airports and air strips round the country.

The timing of the KAA strike is very unfortunate for KQ rights issue. Some investors may be discouraged from buying the shares as an industrial action by KAA may cause uncertainty. For example, it is not known if the strike will re-occur.

It is not only KQ that will be adversely affected by the industrial action; the strike will also affect other air operators as far as indirect costs are concerned. Some of the indirect costs include losses due to flight delays and also rising fuel costs occasioned by the flight delays.

Leaving the rather interesting financial analysis aside, the strike by KAA workers has some legal implications when it comes to force majeure.

I have done a few columns on the principle of force majeure which very simply put, is one party in a contractual relationship being discharged from performing his part of the contract due to occurrence of something beyond his control.

An example of force majeure is due to the global financial crisis. In the USA, a number of suits were filed by borrowers in real estate sector claiming that they could not honour their loan obligations because of the financial crisis.

They wanted the court to classify the financial crisis as an event of force majeure. Recently, another example of where force majeure may arise in contractual relationships, is when the fibre optic cables were cut off by a ship. The issue of hardship would come in between internet service providers and their clients.

The strike by KAA workers may be another one where the principle of force majeure applies.

Strikes, industrial actions, terrorism and acts of war are all classified under the principle of force majeure. In most contracts, there is a force majeure clause that sets out events in which the parties shall be discharged from obligations.

For example, flight delays and cancellations attributed in some way to the strike by KAA would fall under force majeure. It may be as remote as a cargo plane failing to deliver some goods on time due to flight delays caused by the strike. Either way, force majeure may be pleaded...for the strike is not really anybody’s fault.

It has been said by economic analysts, that strikes really do have a great impact on the economy as they cause losses amounting to millions.

Some losses are direct while most are indirect. Analysts especially in the aviation industry have quite some interesting analysis on the impact of strikes on air operators.In one study, the analysts studied the impact of airline operator strikes on the market value of such airline stocks vis a vis their competitors’stock values.

This situation is slightly different from the KAA workers ‘strike as this strike may affect all operators equally.

http://www.businessdailyafrica.com

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