When the Senate Select Committee inquiring into the affairs of Kenya Airways, which I chaired, submitted its report to the Senate in November last year, the Senate unanimously endorsed the report and its recommendations. We had discussed this report with the Ministers of Finance as well as Transport and hard emphasised the need to overhaul the management of the airline in order to ensure that the turn around exercise is successful. This was a result of some comparative studies we had done of airlines under similar circumstances and how they were turned around.
A very recent and living example is that of Malaysia Airlines which has a very comparable history with Kenya Airways. There is therefore no reason why Kenya Airways should fail when this South East Asian airline underwent much more daunting financial hazards before it was turned around as recently as 2005. Let us look at its experience briefly. The only reason that can make Kenya Airways slide into oblivion is if there are certain well placed and ravenous state connected business interests who are bent on running down the shares of the national flag carrier so as to buy it for a song. We have seen this happen to Uchumi Supermarkets; it could easily happen to Kenya Airways under our nose.
The story told by Alex Dicher, Fred Lind and Seelan Singham regarding Malaysia Airlines is instructive. Malaysia Airlines was less than four months away from running out of cash in December 2005 when Idris Jala, summoned by the government from his executive job in Shell, became the CEO of the airline with the express responsibility of turning it around in the shortest time possible. The state-controlled airline had been struggling for some time,but inadequate yield management, an inefficient network, and poor cost control finally brought it to its knees, much as they have done to Kenya Airways. By December 2005 the airline posted a $500 million loss, not very different from the loss that weighed down KQ by the time we were writing our Senate Select Committee Report last year.
Almost six months after he took over, Idris Jala was addressing the nation on TV assuring the people of Malaysia of the progress he was making. Two years later, in 2007, the airline earned record annual profits of just over $200 million, a swing that was no doubt remarkable in an industry known for its cut throat competition and unpredictable hazards. But Jala was not about to be discouraged; he focused on making Malaysia Airlines a “five-star value carrier,” and he did.
According to Alex Dicher and his two colleagues, Jala came to Malaysia Airlines with no experience in the aviation industry or state-run companies. But he had won a reputation for engineering business turnarounds during his 23 years at the oil giant Shell, whose Sri Lankan and Malaysian units he rescued from years of chronic losses. In Sri Lanka, he was fond of saying, “The Shell leadership told me if I couldn’t fix it in two years, just tell them they would shut it down. I’d be the last person to switch off the lights.”
The current CEO of Kenya Airways is the very one who has presided over the loss making national carrier at its darkest hour in the aviation industry. He cannot possibly be the one charged with turning the airline around, notwithstanding the frequent appeal to him “to think out of the box”. The box is already took dark. If seeing within the box is itself a problem, thinking outside it may easily be a herculean task. Kenya Airways needs an Idris Jala, somebody with the proven experience of turning around loss making major business enterprises.
Kenya Airways seems to have been used to a one dimensional approach to solving its business crises. I call them business crises because they are not simply financial, or human resources based or management based. They are all these rolled into one. The problems run deep into the core business of the airline: flying in the skies transporting passengers and cargo from one destination to another and making money while doing this. When Kenya Airways has been flying from one destination to another it has not been able to make money; when it is making money it has not been able to fly from one destination to another. How does this happen? This is the story. OK guys, we are not making money, let us sell three of our aircrafts. That means we give up flying to certain destinations. The end result: we shall very soon lose the money we have just made. It looks simple: but that is how it is. OK we are not making money: fire the staff so that we have fewer people to pay salaries, pensions, benefits, etc. The end result: the staff still working for you begin leaving in hundreds. Forewarned is fore-prepared. Kenya Airways has been bleeding very badly when it comes to the departure of pilots, engineers and crew. Very well trained personnel, the envy of other international carriers which are KQ’s competitors. So we in Kenya have decided to train our people to provide services to other airlines when we could as well improve our own, retain our own personnel and ensure that we do smart business in the aviation industry. Nothing wrong with retrenching and selling aircraft: but only when doing so makes sense within the framework of a serious turn-around plan.
The following question was put to Idris Jala. “What were your first impressions when you took over Malaysia Airlines in 2005?”
His answer: “ Before I joined, I looked at ten years financial data. When you’re brought into a problem, you should first ask what’s wrong with the profit-and-loss statement. It’s crucially important to frame the problem in the context of the P&L rather than something nebulous, like culture, the structure, the processes, and all these other things. You must anchor everything on the profit and loss. I’m boringly consistent on that point.
“Here, it was clear that there were three problems with the P&L statement. The first was a very low yield (I hope KQ so-called management is with me). Average fares were unable to cover the cost of running the airline (in the case of KQ very high fares and few passengers). The second problem was a very inefficient network. For a long time, we were asked to fly routes that didn’t make commercial sense (KQ have you seriously reviewed your partnership with KLM regarding this second problem?). The third problem was high cost linked to low productivity—too many people (in the case of KQ the people are there but the routes are absent. Compounding this is the ratio of management to staff: how many managers manage how many people?).
Question: Mr. Jala, how did you fix the problem?
Answer: “We had three and a half months to fix the problem. At a board meeting on my first day, I announced our business-turnaround blueprint. I’d never worked a single day at an airline before, but looking at the P&L it didn’t take more than an hour to figure out the solution. If you have to control costs, you just go and cut the costs. If your network is inefficient, get rid of the routes that are bleeding cash. And if you have a problem with low yield, fix the yield. What else are you going to say?”
I am afraid KQ authorities, including the Board, are spending too much time consulting and assigning decisions to committees which are yielding very little. The problem is simple: get hold of an Idris Jala somewhere across the globe and bring him here to ask the right questions and give useful and productive answers. Trying to get my dear friend Mbuvi “to think outside the box” is asking too much of him. We need someone who can come to clean the box, air it in the tropical sun, get some oxygen to the people therein to make them breathe some fresh business air and allow our newly found Idris Jala to turn around our airline. These ethnic and business hegemonic games you are playing wont get you anywhere. Like the good book says: stand up and walk.