POINT OF VIEW

Where rain started beating KQ

The proposed Nationalizing direction may or may not yield, time will tell but the truth of the matter is that dismal performance cannot be rewarded

In Summary
  • This points to an incapable board or a board that has vested interests. A situation that is untenable in any business.
  • Unknown to many, KQ chairman Michael Joseph was forced to refund Sh12.6 million, vide receipt number 158785 on March 19, 2019.
Former Kenya Airways CEO Sebastian Mikosz makes a point as chairman Michael Joseph looks on during the announcement of Kenya Airways financial results at Crowne Hotel, Nairobi on March 21,2018. / VICTOR IMBOTO
Former Kenya Airways CEO Sebastian Mikosz makes a point as chairman Michael Joseph looks on during the announcement of Kenya Airways financial results at Crowne Hotel, Nairobi on March 21,2018. / VICTOR IMBOTO

Ever since Titus Naikuni took reins of KQ in 2003, it is safe to say the pride of Africa has never been the same. The airline has suffered immensely under the weight of poor performance but no real analysis has been done to explain where exactly the problem lies.

I will attempt to peel the onion of discloser and dwell into the fine and often overlooked reasons as to why KQ is where it is today.

There is one remarkable item that must be emphasized, that for the past 16 years, KQ has seen serious management challenges and massive financial impropriety and not a single prosecution of financial mismanagement been prosecuted.

This points to an incapable board or a board that has vested interests. A situation that is untenable in any business.

Between Mbuvi Ngunze and Sebastian Mikosz, a total loss of Sh62.8billion has been registered from 2015 to date. This is nowhere near acceptable and begs the question, why would the KQ chairman sit, and worse still accept to reward mediocre performance?

Rewarding losses

Before Sebastian Mikosz left in an apparent move for “personal reasons, he was awarded Sh91 million The same board went ahead and compensated Mbuvi Ngunze a record Sh51 million to hand over to his predecessor Mikosz.

These are remarkable payouts for two people who had delivered total losses of Sh62.9 billion in less than five years, and in essence, drove the company deeper in debt between 2017 and 2019. One must, therefore, ask why is would any reasonable board reward dismal performance and in fact, seemingly praise the CEO?

Unknown to many, KQ chairman Michael Joseph was forced to refund Sh12.6 million, vide receipt number 158785 on March 19, 2019. The purpose of the refund was because he had colluded with the then CEO to award himself a salary increment of Sh1.5 million per month. This shows a board member who blatantly ignores the very rules that he is supposed to oversee. 

Having looked at airlines across the world I noted some particular aviation skills in all boards and categorised them as “critical to have” in boards: There is a need to have aviation management experience, to enable boards to understand these guiding principles and hence guide the decision-making.

 

People with aeronautical science, aviation maintenance science and licensed aircraft maintenance engineers are also critical. They enable sound judgments when it comes to big decision-making on technical issues.

I have found that many boards also have experts in aviation safety and accident investigation. Safety is the number one priority of any airline. In today’s era of leasing, getting an aircraft lease expert, financing, and maintenance resources personnel is important.

If the same board can have people with air cargo management and aviation auditing experience, it will help save by ensuring the business does not incur an initial, unnecessary financial obligation.

Bad decisions

A look at the historical blunders made by the management at KQ over the past 16 years shows why subject matter experts are critical to its operations.

Referring to the Delloite report of 2016 it made reference to losses of Itegi Githinji making massive losses by making poor FX decisions that cost the airlines 176 million. This was done irregularly as only the financial director is mandated to make such FX decisions. To date, he has never been found culpable nor punished by the board for that loss.

The same report shows that Itegi received massive payments between him and his wife totaling to Sh21.5 million a clear indicator of corruption. CBK has not taken any action against the Dubai bank for what is a clear violation. A similar report presented to Wanjiku Mugane as chairman of the audit committee indicates that the same Itegi procured fuel purchases and hedging that cost KQ a whopping Sh398 million.

Revenue per employee

An analysis of productively clearly shows employees' fleet and overhead is not the main concern. The issue is where managing direct costs is concerned. This is the Achilles heel of KQ, it must manage efficiently its direct costs.

This means employees are indeed carrying their weight when it comes to their output versus performance of the company. The problem is clearly not there and there cutting numbers may not yield the solution that one may seek. It may in fact do the opposite.

While we all agree that KQ must be kept alive, the talks about cutting staff costs are not where the solution is to ensure we stop the bleeding in management blunders, punish those involved and seal the leaks.

The proposed Nationalizing direction may or may not yield, time will tell but the truth of the matter is that dismal performance cannot be rewarded and that subject matter expert needs to be involved at all levels of board and management decision making.

Retired Captain John Lewis Smith has over 40 years flying experience and over 22,000 flight hours