Cash-strapped KQ mulls staff pay cuts in turnaround plan

Troubled national carrier Kenya Airways is considering staff salary cuts in the ongoing restructuring in a move that could trigger fresh confrontation with the workers’ union.

The airline, which is known as KQ by its international code, has been offloading assets to finance a turnaround plan after announcing a record Sh25.7 billion after-tax loss in the year ended March 2015.

Chief executive Mbuvi Ngunze said in a TV interview on Wednesday that Kenya Airways has put on the table the two options, of either cutting staff salaries or sacking others.

It is illegal under the International Labour Organisation laws to cut workers’ salaries, but companies ordinarily negotiate with their staff to either take pay cuts or go home on redundancy packages.

“Staff matters are emotive and that is why we have to be responsible so we are not jumping the gun. We must assess all possibilities, do we take salary hits do we reduce numbers?” said Mr Ngunze.

“Inevitably, there will have to be some hits, and that we have told our staff.”

The carrier recorded a growth in its staff costs to Sh16.96 billion for the year ended March 2015 compared to Sh15.35 billion in the previous year.

The airline implemented a staff restructuring in 2012 aimed at improving operational efficiency.

The layoffs affected 599 employees and as at March 31, 2015, a provision of Sh1.6 billion was held to cover the redundancy payments. The unionisable staff moved to the Industrial Court to block the restructuring and the court ruled in their favour, ordering the reinstatement of affected employees.

READ: KQ signals fresh job cuts as it sinks to Sh11bn half-year loss

The company appealed the ruling and on July 11, 2014, the Court of Appeal ruled that the company was justified in declaring the redundancy but failed to meet the statutory threshold on procedural fairness. The former employees have lodged an appeal in the Supreme Court.

“We will take some cost hits by renegotiating contracts and revisiting staff rationalisation,” said Mr Ngunze during the Citizen TV interview.

“Do we need to rationalise our staff? Do we look at opportunities to reduce costs? Yeah. We will be totally sensitive with this as this is an emotive issue, but certainly there will be some hits.”

The long-running standoff between the Kenya Aviation Workers Union and KQ is seen as a hurdle for the carrier in its restructuring plans.
According to the CEO, once a decision is made, they will have to reach an agreement with the union representatives on the issue before any action is taken.

Last July, the airline hired McKinsey & Company to help effect a 24-item turnaround strategy that the management had crafted, which is to be implemented over one-and-a-half years.

The plan, which is currently being implemented, includes review of prices, revenue management, sales, cost reduction and cash and financial optimisation.

“It has been a subject that has been brought up and McKinsey have not ruled out staff rationalisation,” said Kenya Aviation Workers Union (Kawu) secretary-general Moss Ndiema.

He, however, said since previous staff rationalisation affected workers under Kawu, the current restructuring should be focused on management and the Kenya Airline Pilots Association members.

“Pilots are being paid yet they have not been flying. The scale-down of the fleet is going to mean floating pilots, so that is where cost-cutting should be focused,” said Mr Ndiema.

The cash-strapped carrier was last year forced to turn to debt to pay its staff due to its current liquidity crisis that had left it with no option but to rely on debt to sustain its nearly 4,000-strong workforce.

Kenya Airways followed the Sh25.7 billion after-tax loss for the year ended March 2015 with a Sh10.95 billion net loss for the six months to September.

The carrier is in a negative equity position of Sh33.9 billion while its revenues have remained flat, further impeding its targeted rebound to profitability.

This has prompted the airline to look into all avenues to bridge the profitability gap from offloading assets to cost reduction and even the recent sale of the airline’s prime landing spot at Heathrow Airport in London.