Khandava has been involved and most often been the primary demonic component in a number of events since I started. If I review the events of the last year or so, I can only find a handful that we did not participate in and almost all were small, inner-org interactions for a particular guild.
We had solid interaction in the 'egg wagon' and ice golem/Alekhmanhahla events, the shade ritual and nightmare plagues. For the tenth monolith event, Khandava reached out to Kinsarmar to form an agreement and worked to relax unwelcome statuses afterward to continue interaction with them. Caelya is prominently listed in the recent diabolist release.
Making a sweeping change based on the fear that an organization that has been active in events might not participate in a future event isn't sound. It certainly has not been my experience as an active Khandavan.
I could make the same argument in reverse of Antioch, and state that if an event was not up to their PK standards, they would turn around and leave. That doesn't make it accurate.
I stand with Khandava absorbing Stavenn being the easiest option. Treat it like a guild merger, and have one org absorb the other. You have said that Stavenn has been fairly dead. Khandava has several active citizens who are pushing for positive change. While creating a wholly new organization would be apt for some councils/cities, I do not think that would work well for the reasons below:
Khandava transitioned from a magick org to a demonic org in 2011. No redescriptions were made of the council and the onus of altering the council's roleplay was placed upon its active members. Many of the same people involved in the initial changes are still active and have tirelessly worked over the course of the last five years to see substantial change to the council's guilds and role in the world.
Creation of a new organization is asking us to do this a second time. We have already done it once. Merging citizens into Khandava would be an easy transition and allow us to see who is active and who is not, and add to our active population and leadership.
If we keep the layout of the council and merge into a new joined organization, it opens up another problem. Stavenn is fairly dead for a reason. Likewise, the majority of Khandavans keep ring off for a reason. Merging their leadership could easily turn Khandava into Stavenn 2.0, which risks losing a much larger portion of the active population.
I am certain that merging Stavenn into Khandava as Khandavan citizens would mean that everyone would be afforded a fair chance regardless of their former status. Caelya is not unreasonable. Undesirable behavior (think less disagreeing and more lengthy public space discussion of an explicitly sexual nature) could be dealt with without much trouble, and at the end of the day, both demonic and our new player population would benefit from an increased population in an organization with a strong, established role.