Ruling on Kenya Airways staff row sparks protests

The ruling by the Industrial Court ordering Kenya Airways to reinstate 447 sacked workers has sent shockwaves across corporate Kenya for placing the interests of employees above those of investors.

The private sector said the ruling would have far-reaching negative implications on the local business environment besides the adverse impact on the airline’s cost-cutting and turnaround plan.

“Much as we respect the court’s independence, its decision on this matter will hurt Kenya Airways’ business and send a wrong message to other current and prospective investors,” said Jacqueline Mugo, executive director of the Federation of Kenya Employers.

READ: KQ’s recovery suffers blow as sacked workers are reinstated

For Kenya Airways, the ruling means a high wage bill even as its revenues fall due to reduced demand for air travel in its main destinations.

The national carrier expected to save about Sh110 million every month from the rationalisation.

On Monday, Justice James Rika ordered the airline to pay the affected workers’ salaries and allowances for the three months from September to date, arguing that their contracts were terminated unfairly.  

Kenya Airways Tuesday said it would comply with the court order “as a responsible corporate citizen”.    

“The employees who reported to work this morning as directed by the court are now in the process of being issued with reinstatement letters and will be sent on leave awaiting redeployment,” Kenya Airways managing director Titus Naikuni said in a statement.

But some of the workers were unhappy with being sent on leave, causing a temporary stand-off.

READ: Retrenched workers reject KQ's offer

Nicholas Barasa, the Aviation and Allied Workers Union (AAWU) National secretary-general, said the workers had not yet received their reinstatement letters.

“The workers will start picking their individual reinstatement letters from Monday and decide whether to resume work immediately or go on leave,” he said, adding that the union had not yet received communication from the airline on the leave plan.

Kenya has so far been ranked as having a relatively flexible and efficient labour market, making it a strong contender for new domestic and foreign investments.

However, the ruling made by Mr Justice Rika has cast that advantage into doubt with Mrs Mugo saying employers would seek audience with government officials to assert the significance of a labour market that allows for business planning and optimum allocation of human capital.

“Efficiency and flexibility of the labour market are critical for ensuring that workers are allocated to their most efficient use in the economy and provided with incentives to give their best effort in their jobs,” the World Economic Forum said in a statement when it released the Global Competitiveness Index three months ago.

Kenya was ranked at position 102 on the index, having moved up four places from last year, helped by efficient labour market credentials.

Kenya’s ranking in terms of labour market efficiency improved to position 37 globally compared to 46 last year in the WEF’s Global Competitiveness Index.

This placed the country high up in the list of investment destinations based on labour market efficiency ahead of South Africa (ranked 95), India (81), France (113) and Germany (125) where firms face rigid rules in hiring, firing and setting staff wages.

Kenya’s position in the index would have been better were it not for rampant corruption, low access to credit, bureaucracy, a unstable macroeconomic environment and crime.

The national carrier shed 578 jobs in September to control a wage bill that had doubled from Sh6 billion in 2007 to Sh13.4 billion last year.

READ: Why Kenya Airways has to send 578 staff home

The rationalisation was expected to cut staff costs by between 10 to 15 per cent or about Sh1.3 billion annually. 

The airline blamed rising labour and fuel costs for the Sh4.8 billion net loss that it reported for the six months to September 30, this year. For the half year to September 30, 2011, the airline made a net profit of Sh2 billion.

The number of Kenyan employees had grown from 3,729 to 4,170 during the period while that of overseas employees rose from 425 to 664.

The airline issued a profit warning that its full year results would be a quarter less than the previous year’s. The announcement was in line with capital market regulations.

Revenues dipped by Sh5.1 billion to Sh49.8 billion and passenger traffic, which accounts for 90 per cent of the business, dipped 10 per cent to Sh43.6 billion in the first six months of the year.

The airline’s share at the Nairobi Securities Exchange dropped from Sh11.60 on Monday to Sh11.30 Tuesday compounding a loss of 40 per cent over the past one year. The share was trading at Sh11.90 last week on Friday.