Opinion: How 16 Years of Management Blunders Have Brought KQ to Its Knees

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 once-proud airline has suffered immensely under the weight of poor performance and therefore reputation, 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.

Above is the loss report since 2015 during the tenure of Mikosz and Mbuvi

Between Mbuvi Ngunze and Sebastian Mikosz, a total loss of 62.8Billion 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 what is clearly wanting performance total combined payout of 140million between Ngunze and mikosz?

Reward after losses

Before Sebastian Mikosz left in an apparent move for “personal reasons, he was awarded 91 million Ksh.  The same board went ahead and compensated Mbuvi Ngunze a record 51m to hand over to his predecessor Mikosz. These are remarkable payouts for two people who had delivered total losses of 62.9B in less than 5 years, and in essence, drove the company deeper in debt between 2017 and 2019 as the above chart indicates. One must, therefore, ask why is would any reasonable board reward dismal performance and in fact seemingly praise the CEO?

Board constituents

In an attempt to find out what was bedevilling KQ we investigated the board constituents of KQ and compared it with other leading global airlines and the cracks began showing immediately.

Lufthansa CEO Spohr started his career as a pilot then, aerospace engineering then assistant CEO, then heading cargo department before becoming CEO a clear aviation expert who knows and has risen the ranks.

A look at Rwandair airlines paints a similar picture, Girma Wake is aviation executive and was CEO of Ethiopian Airlines from 2004 to 2011 Girma return to the airline in 2018 by joining its board of directors. He served as the chairman of the Board of Directors of Rwandair.

Having looked at airlines across the world I noted some particular aviation skills in all boards and categorized 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.

The Agriculture, floriculture, horticulture and tourism sectors together with hotel associations being the backbone of Kenya’s economy, should be included in the board as they are the biggest foreign exchange-earners. As a result, air cargo management expertise and aviation auditing are needed.

The above chart shows the number of aviation board members in many global airlines is by far more than non-aviation experts. A lesson for KQ

Bad board 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 Mr Itegi Githinji making massive losses by making poor FX decisions that cost the airlines 176 million. This was done irregularly as only the FD 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 totalling to 21.5million a clear indicator of corruption. CBK has not taken any action against 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 Mr Itegi has procured fuel purchases and hedging that cost KQ a whopping 398 million.

Revenue per employee

We sought to relook at where the problem lies in KQ and in so doing got this chart that analyses revenue per employee. A clear look at the chart shows that the revenue per employee rating is positive trending. Meaning that 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.

The chart on cost as a proportion of operating expenses now starts revealing where the problem is…and clearly employees fleet and overhead is not the main concern. The issue is clearly where managing direct costs is concerned. This is the Achilles heel of KQ, it must manage efficiently its direct costs.

Conclusion

While we all agree that KQ must be kept alive, the talks about cutting staff costs are not where the solution is. 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 those subject matter experts need to be involved at all levels of board and management decision making.

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