CONCERNS

KQ spending raise questions amid privatization debate

KQ paid British Airways to fly its staff on same route

In Summary

• Part of the directorship increased their own salaries without approval.

• They were asked to payback (receivables from directors) Sh54 million.

Kenya Airways Boeing 787 dreamliner at KQ headquarters in Nairobi on April 26,2017FILE
Kenya Airways Boeing 787 dreamliner at KQ headquarters in Nairobi on April 26,2017FILE

Kenya Airways spent thousands of pounds to fly its top employees using rival airlines between 2017 and 2019, the Star has established, pointing to imprudent spending at the loss-making carrier.

This adds to unapproved salary and allowances increment by the top brass, who were asked to refund (receivables from directors) Sh54 million, quoted in the airline’s 2018 financials.

Top ticket beneficiaries include Chairman Michael Joseph who on April 5, 2019, flew with British Airways between Nairobi (JKIA) and Heathrow, with KQ coughing £1,973.50 (about Sh 266,286.37) for the trip, on a route that the national carrier flies.

 

This was on ticket number 1258790293838.

On November 13, 2018, KQ spent £4,553.48 (about Sh 614,405.72) on British Airways tickets on the Nairobi-London route.

A whooping £6,615 (Sh892,568.72) was spent in the same airline and route on September 22, 2017.

Ordinarily, it would cost about Sh35,000 to fly an employee on an upgradable KQ ticket, an amount that covers for taxes only.

A remuneration increment that was not approved by the board, but with a nod by former Treasury CS Henry  Rotich, saw both Joseph and former CEO Sebastian Mikosz asked to refund approximately Sh54 million.

While it is not clear if Mikosz made a refund, KQ received Sh12.6 million from its chairman in a receipt number 158785 on March 19, 2019, payment made via EFT (Electronic Funds Transfer) from 14 Pembridge Crescent(London).

The former CEO was expected to make a refund of about Sh36 million.

 

“Receivables from directors included in other receivables are amounts due from directors amounting to Sh54 million,” the airline’s financial statement 2018, reads in part.

The dealings took place even as the airline remained in losses.

Last week, CEO Allan Kilavuka ruled out profitability in the near future, saying that even the planned nationalization is not a strategy to rescue the airline from its current financial woes.

In a media interview, Kilavuka said the airline’s top priority as a strategic asset is to stir the economy and not merely focusing on profitability.

He however remained optimistic that the airline was moving in the right direction towards reclaiming its past glory as of the Pride of Africa.

"I am confident that the structural reforms in place will return the airline to its former glory,’’ Kilavuka said.

He cited coronavirus pandemic as one of the greatest impediments to the airline’s revenue, revealing that already Sh10 billion has been lost due since it suspended flights in March, as a cautionary plan to minimize the spread of the virus.

He projected that KQ, which reopened domestic operation on July 15 to incur a total loss of Sh40 billion by end of the year.

His statement is a bitter pill to investors who have experienced a dividend dry spell for four years now, resigning their fate and hope to redeem their stunted investment once the planned buyout of minority shares and subsequent nationalization is finalized.

It also confirms sentiments by the airline’s chairperson (Michael Joseph) who asked investors not to expect a dividend but rather take solace in the planned buyout, which, however, management does not believe will rescue the airline.

"It is unlikely for dividends to be paid out anytime soon. It is painful but we hope that the proposed nationalization will see shareholders earn a premium on their shares after the valuation that will factor in sacrifices made," he said.

According to the proposed law sponsored by the immediate former leader of Majority in Parliament Aden Duale last month, KQ, KAA, the Aviation Investment Corporation and other entities will be collapsed into a holding entity, Kenya Aviation Corporation (KAC).

 KQ will have all the powers necessary for the proper performance of its functions or as may be assigned by the KAC board.

The initial share capital of KQ will be Sh7.48 billion divided into 74,823,452 ordinary shares as may be varied from time to time in accordance with the provisions of the Companies Act, 2015.

In May this year, it reported an Sh8.85 billion loss for the year ended December 31, 2019, attributed to an increase in operating costs that grew by 12.4 per cent to Sh129.1 billion compared to Sh114.8 billion the previous year.

“The Group saw a 12.4 per cent increase in operating costs, driven by the increase in capacity deployed and an increase in fleet ownership costs attributed to the return of two Boeing 787 aircraft that had been subleased to Oman Air,” KQ told investors in the latest AGM.

The poor results saw shareholders incur Sh2.23 loss per share, almost doubling an Sh1.30 loss reported in the previous financial year.

Despite the government move being counted on to save jobs and create more opporunities in the aviation industry, KQ is sending home 182 pilots with more than 400 cabin crew facing job losses.