Sad trend of KQ’s deepening loss must end
What you need to know:
- On aircraft financing, one wonders why KQ is servicing loans at a rate two times higher than the global average.
- Experience has shown that reliance on expatriates to steer the airline to profitability is not a viable option.
The announcement by Kenya Airways of its overdue annual financial results for the year ended December 31, 2018 with pomp and grandeur a few days ago was received with utter shock, disbelief and disappointment.
With Sh7.5 billion loss declared, the national carrier lost Sh1.5 billion more than in the previous financial year.
This at a time when it has engaged seven “top-notch airline experts” from Poland, the native land of airline’s chief executive officer Sebastian Mikosz, with salaries of Sh1 billion-plus.
The KQ boss blamed the dismal performance on three main cost drivers: fuel, personnel and aircraft financing.
Over the past year, KQ spent Sh14 billion more on fuel as costs rose 73.6 per cent to Sh33 billion.
In 2017, however, Seabury Consultants had estimated that a jet fuel tax waiver could save the airline over Sh7 billion annually — what with the global fluctuation in jet fuel prices, which hit a three-year high of Sh8,694 per barrel in September 2018.
The fuel costs can only be blamed on management failure. Had the bosses as aggressively sought the jet fuel tax waiver as they pushed for the takeover of Jomo Kenyatta International Airport (JKIA), KQ could have posted better results.
It’s not clear how the other scapegoat, employee costs, have crippled the airline when, indeed, the workers have not had a raise for the past five years.
That brings into focus the cost of keeping the big number of expatriates hired over the past two years. Insiders indicate that some of them are paid up to Sh5 million per month.
On aircraft financing, one wonders why KQ is servicing loans at a rate two times higher than the global average.
At Sh14.4 billion annually, KQ’s expenditure on airline leasing contracts for 20 aircraft accounts for 11 per cent of its operating cost, against a global average of five per cent.
The KQ board and management ought to renegotiate the lease terms to align to global benchmarks.
Apparently, none of these key reasons relates to competition — the driving force behind KQ’s clamour to take over the running of JKIA from the Kenya Airports Authority (KAA). That means even if KQ runs JKIA, its problems will not end.
The airline’s management has perfected the art of deceit to camouflage its rot, pilferage and sheer mismanagement.
On page 119, paragraph 36 (d) of KQ’s 2018 financial reports is a curious entry under “Receivables from Directors” — Sh54 million.
It’s unclear and highly suspicious how KQ would receive such a huge sum of money from its directors. Is it fundraising through board members? This sounds more like damage control following acts of pilferage at that level.
Lastly, management changes at the top must be given top priority. Experience has shown that reliance on expatriates to steer the airline to profitability is not a viable option.
Besides, other, more profitable African airlines, such as Ethiopian Airlines, do not have non-citizens as CEOs or in top management positions; they are efficiently run by local talent.
Mr Ndiema is the secretary-general of Kenya Aviation Workers Union (Kawu). [email protected]