Ideas & Debate

What Treasury bailout means to KQ

KQ

A Kenya Airways Boeing 777-300ER at the Jomo Kenyatta International Airport, Nairobi. PHOTO | FILE

Years ago when I worked for Kenya Airways (KQ) as an intern, I was under the stewardship of a jovial man who was just a few months away from retirement.

He had been at the airline since 1977; that time the East African Airways.

He would narrate many stories about how the airline evolved and stayed afloat over the years.

He told of a story in the early 1990s when a powerful Cabinet minister in the Kanu government recalled a Europe-bound plane that had just taken off and diverted it to South Africa.

The politician with his entourage where dropped off before releasing the plane to head for its initial destination.

He explained that it was not an easy task for the airline to cut political ties with bureaucrats, under the leadership of Duncan Ndegwa who was hell-bent in turning the airline around.

Kenya Airways’ woes started after the Douala plane crash in 2007 that killed 114 people.

Just two years after the Cameroon tragic accident, the national carrier reported its first loss and continued to tumble.

Kenyans’ unconditional love and cherished pride for the airline have clouded many from seeing the recurring losses. I agree that we should not watch the national carrier plunge.

But from an economic point of view, an operating loss cannot be knocked off the financial books with a one-day cheque settlement.

It requires a neat managerial tapestry than just correcting the accounting books with a bailout lifeline.

KQ has been carrying losses since 2012. This year, it sought the help of a financial advisor to help restructure its debt. A year on, the Treasury is extending a Sh4.2 billion debt.

Isn’t that indicative of credit unworthiness?

A cash bailout from the government should not have been the first, but rather the last option on the table.

For a publicly listed company at the Nairobi Securities Exchange to be rescued by the government, is it a market pointer that the airline has reached its shell life? Is the government gambling to have the eagle fly back to the skies?

Looking at KQ’s top line, the airline is still afloat and not on the road to insolvency.

Its growing market share in the continent for both passenger and cargo services confirms it.

In the year 2012/2013 alone, despite the Sh3.3 billion loss reported, KQ had an 8.2 per cent increase in passenger numbers, pushing its annual turnover from Sh98.9 billion to Sh106 billion.

But it is in the same financial year that two executives took home an annual salary of Sh103 million and top executives received an 18 per cent salary raise. Shareholders got nothing.

For two years running, it has been voted the best cargo airline in Africa while covering 20 destinations only.

If the government is determined in easing the airline’s bulging debt burden amidst its ambitious expansion plan, a two or three-year tax relief would have been sound.

The splashing of money whose attached conditions remain scanty is widening the floodgates of unaccountability in corporate governance.

Globally, there is cutthroat competition in the airline industry and making profits requires a carrier to identify the changing expectations of customers as well as ensure prudent management of overheads.

A random survey from KQ’s frequent passengers and perusal of its books of accounts confirm that the national carrier may have missed this memo.

As we extend our love and patriotism to the national carrier, the quid pro quo is for it to meet customer’s expectations.

There is no short-cut to organisational survival if improvement of customer satisfaction is not an entrenched core value.

For the Treasury bailout, he who pays the piper calls the tune. There exists a direct correlation between finance and influence.

In March this year, KQ management declined to honour summons from a parliamentary committee on the premise that it’s an autonomous private entity.

This was after the committee had asked why Ugandan President Yoweri Museveni was allegedly snubbed from being picked up from his rural town of Mbarara to attend a Head of States summit in Nairobi.

In future, it may be hard for KQ to snub such summons when its debt lifeline approvals lie with Parliament.

Mr Watima is an economist.