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KQ wage bill dilemma after spending millions on consultants

Polish consultants earned Sh400.2 million in 13 months

In Summary

•The hiring of consultants has not yielded fruits as the airline remains in losses, with the latest being the Sh12.98 billion loss for 2019.

•Managment targets to lay-off 1500 staff by September.

Kenya Airways Plane.Photo/File
Kenya Airways Plane.Photo/File

Polish executives hired in 2017 to 'turnaround' Kenya Airways drew salaries of between Sh3.6 million and Sh5.4 million a month, in what seems to be another flopped strategy for the loss-making carrier.

This, even as the loss-making carrier moves to lay-off staff as a cost-cutting measure in the wake of Covid-19.

The five consultants who were hired by former chief executive Sebastian Mikosz from his home country, Poland, and two others, earned a total of Sh400.2 million in salaries in 13 months, documents seen by the Star show.

Travel expenses of about Sh36 million (for the executives and spouses) brings the total spend to Sh436.13 million, a period that the carrier spent Sh1.014 billion on directors and consultants' salaries and allowances, even as it remained in the red.

These include house allowance, car rental, fuel, airtime, bodyguard, and travel expenses for the executives and their families.

The consultants included Michal Smierciak(project team leader) tasked with introducing changes in supply chain and procurement and Grzegorz Malysz(internal restructuring of KQ's operations including development of a KQ 5-year plan).

Magdalena Serwach was a consultant in supporting re-organisation of KQ procedures and manuals while Piotr Piwowarczyk supported several business functions, mainly focusing on information systems, human resources, and flight operations.

“Kenya Airways has sourced for professionals that have relevant experience in the international markets beyond the Kenyan borders,” Mikosz had told the Transport Ministry on July 22 last year, when he sought a one-year extension(renewal) of the consultant's work permits.

“Their objective is to achieve the business goals in the short-term whilst building the right skillset in the long-term,” the letter to the then Principal Secretary Esther Koimett reads in part.

According to the former KQ boss who left in December last year,an analysis of the country's aviation sector had revealed that misalignment between strategic goals of various aviation stakeholders led to the worsening of its position in the region.

“Kenya Airways management decided to contract the team of consultants to support turnaround efforts,” he had said.

Mikosz however left five months earlier than the end of his three-year contract, which was to end this year, citing personal reasons even as his rescue plans failed to turn the company around.

His last moves included a proposal to take over the Jomo Kenyatta International Airport by Kenya Airways, a move that was stopped by Mps.

The hiring of consultants has also failed to turn around the carrier close to three years since their hiring(September 2017), with the airline in May this year announcing a Sh12.98 billion loss for the financial year ended December 31, 2019.

This was deep from a Sh7.56 billion loss in 2018.

In February last year, Kenya Aviation Workers Union (KAWU) protested the existence of the consultants while blaming poor decision making at the airline for its troubles.

“One can not resist the impression of an airline taken hostage... KQ has lost close to Sh1.3 billion in the last 18 months. ..this can only be called theft,” KAWU Secretary General Moss Ndiema said.

Operating costs eroded revenue gains made in 2019, which had increased 12.4 per cent to Sh128.32 billion from Sh114.19 billion in 2018.

“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 on May 26.

Management is targeting at least 1,500 workers in the ongoing lay-offs to be concluded by September. It has already served 22 pilots and 400 cabin crew and support staff with redundancy letters.

Last Friday, KQ chief executive Allan Kilavuka wrote to the Kenya Airline Pilots Association (KALPA), indicating management’s intention to lay off staff, a move blamed on low revenues in the wake of the Covid-19 pandemic.

“We did an extensive internal review of our operations in May 2020 and are inevitably forced to carry out an organisation-wide restructuring. This will culminate with, among other things, a reduction in our network, assets as well as staff,”Kilavuka says in the letter.

KALPA, has however maintained sending home staff will not help KQ turn around, noting that its costs are more on lease contracts and other operational costs, and not its wage bill.

KQ has an annual wage bill of Sh12 billion against a revenue stream of Sh128.32 billion, as of last year, with costly aircraft lease deals blamed for eroding its gains.

Some of the leases include three Boeing 777-300s leased to Turkish Airlines where KQ is forced to pay extra to the initial leaser after Turkish Airlines bargained for cheaper rates.

“Even if all KQ staff worked for free, it will still make losses if critical issues are not addressed. Laying off staff is not a solution for the airline,” KALPA General Secretary-Captain Murithi Nyagah said yesterday.

KQ’s worse year was 2016 when it reported a Sh26.2 billion loss after falling deeper from a Sh25.7 billion loss reported in 2015.

It is not the first time the carrier is seeking foreign expertise.

In 2015, it hired New York-based–Seabury to help restructure its operations–evaluate KQ’s sales, ticketing, and network planning, and help achieve best practices in the airline industry.

A previous strategy dubbed 'Project Mawingu' launched in 2011 with the aim of expanding KQ’s fleet size to 119 aircraft from 35, and its network coverage from 58 to 115 routes by the end of 2021, also remains another decision that has left the airline struggling.

Stakeholders and the public are hoping the current nationalisation move, through the National Aviation Management Bill, 2020, will help salvage the national career, which remains a strategic asset for the country.

The Bill currently in Parliament is seeking to create an aviation holding company under which the airline's balance sheet will be merged with Kenya Airport Authority.

If the Bill becomes law, the airline will be nationalised, buying out minority shareholders.