Kenya Airways’ #ticker:KQ employees are set to endure a pay freeze in the next couple of years if their employer accepts the stringent conditions that one of the major shareholders KLM wants met before it can inject fresh capital into the ailing business.
The Dutch carrier has sought KQ’s commitment that it will keep employee costs in check as a condition for the release of Sh2.5 billion in capital contribution.
KLM has committed to inject a total of Sh7.9 billion into KQ as part of the ongoing restructuring, which will see its stake in the business drop to 13.7 per cent from current 26.7 per cent.
KLM’s demand is contained in a circular KQ has sent to its shareholders explaining the ongoing restructuring that will also see the Treasury and 11 local banks convert Sh50.2 billion of debt into equity.
The circular says KLM will either before completion of the restructuring or soon thereafter — but prior to the making of the open offer — (inject) Sh2.5 billion less certain cash advances made under the joint venture agreement.
“This is subject to certain conditions, including… agreeing to maintain staff costs at the current levels adjusted for inflation with any other increases subject to commensurate productivity improvements,” says the circular.
KLM also says it will only wire the funds to KQ after interrogating the revised lease agreements for its Boeing 777-300 fleet to confirm if the new concessions are sustainable.
KQ’s wage bill stood at Sh15.7 billion as of March 2016, having dropped by eight per cent from the previous year’s Sh16.96 billion on cost-cutting measures, a trend KLM would like maintained in exchange for their monetary support.
The national carrier closed the year to March 2017 with lower staff expenses after exiting 288 of them through retrenchment and natural attrition, leaving the employee count at 3,582.
Two years ago, the airline entered into performance contracts with its cabin crew.
But pilots, who have been accused of not putting in the hours commensurate to their pay, have been hostile to a similar arrangement.
“KLM simply wants the company to demonstrate efforts to ensure that staff costs keep pace with KQ’s performance. Their demand is not unreasonable,” Mbuvi Ngunze, KQ’s restructuring adviser and former CEO, said in an interview.
Moss Ndiema, the secretary-general of a workers’ lobby which lists 2,500 KQ staff as members, says they will seeking “reasonable increments” this year to cater for inflation and performance.
The Kenya Aviation Workers Union (Kawu) expects to commence negotiations to amend their collective bargaining agreement (CBA) with the KQ management soon.
Late last year, KQ engaged Kawu seeking to freeze annual increments for a period of two years, a move they said would “cut costs and increase revenue” for the cash-strapped airline”.
“We are alive to the financial realities of the airline and we shall engage management from that point. However, our members still need to be cushioned from inflation and rewarded for performance,” Mr Ndiema said in an interview.