Kenya Airways chiefs take a pay cut

Top executives of Kenya Airways recorded a pay cut last year as the national carrier races to recover from tough two years that saw it swing to the biggest loss ever in the history of companies listed on the Nairobi bourse.

Details in the national carrier’s annual report show that the annual pay of executive directors dropped to Sh77 million in the year to March from Sh82 million a year earlier.

KQ’s annual report lists its executive directors as Titus Naikuni (CEO) and Alex Mbugua (group finance director) —and this means they shared a monthly package of Sh6.41 million, down from last year’s Sh6.83 million.

Analysts linked the pay drop to performance-related compensation and tied it to KQ’s earnings for the year ended March 2012 when carrier’s profit dropped 51.4 per cent to Sh1.66 billion.

READ: Kenya Airways posts Sh7.8bn loss

This means that the impact of the Sh7.86 billion loss that airline reported in the year to March is yet to be reflected on KQ’s executive pay, which last dropped in 2010 after the carrier posted a loss of Sh4 billion.

The Business Daily failed to get a comment from KQ as Mr Mbugua’s mobile phone went unanswered.

“The pay drop appears to be linked to bonuses rather than the actual pay. It could have something to do with two tough years KQ has faced,” said an analyst at Standard Investment Bank.

This is a departure from last year when KQ executive pay rose 24 per cent in what was attributed to the doubling of the profits in 2011. KQ has battled a host of internal and external challenges that saw it fail to pay a dividend for the first time since 1999.

READ: Top Kenya Airways executives’ pay goes up by 24 per cent

Its share at the Nairobi Securities Exchange (NSE) has shed 33.3 per cent in the past year to the current price of Sh9.45, making it one of worst performing stocks on the bourse over the 12 months.

Its revenues dropped by Sh9 billion to Sh98.8 billion on a drop in passenger traffic. The airline says passenger traffic dropped 3.6 per cent to 9.5 million.

Costs changed a little at Sh107 billion. The direct costs, including fuel and labour expenses, stood at Sh77.2 billion, the same level as last year when they rose 44 per cent. This could be a pointer that the national carrier is getting on top of its costs, which have previously influenced profits.

But the airline is not putting brakes on cost management. It has negotiated fleet maintenance contracts that will save it Sh5 billion over the next five years, together with modernisation of its fleet with more fuel-efficient Embraers and Boeing B-787 Dreamliner planes.

READ: KQ eyes cost savings to restore profit

The possibility of opening a hotel in Nairobi to cut expenses associated with accommodating staff and passengers whose flights have been delayed is on KQ’s radar.

The national carrier also plans to set up a fuel procurement company to increase efficiency in the buying of the commodity that accounts for 38.5 per cent of total operating costs. Citigroup projects the airline will post a net loss of Sh3.1 billion in the current financial year, ending March 2014 on higher costs that will wipe out sales.
KQ’s sales are expected to rise 15.3 per cent to Sh114 billion but Citigroup says expenses such as direct costs and net interest payments will rise to Sh118.5 billion, offsetting sales.
The national carrier is projected to return to profitability in the year ending March 2015 with a net profit of Sh618 million, on which Citigroup does not expect it to declare dividends.