Troubled national carrier Kenya Airways #ticker:KQ paid its former chief executive, Mbuvi Ngunze, a total of Sh104.8 million when he left the airline last year, revealing the high cost of his early exit.
Mr Ngunze’s exit payout, which ranks among the highest in corporate Kenya, is disclosed in the airline’s latest annual report.
KQ, as the airline is popularly known, says in the report that it made a series of severance payments to Mr Ngunze starting with a Sh22.8 million compensation for loss of office in the 12 months ended March 2017.
That was then followed by a payment of Sh58.8 million for a similar reason in the nine months ended December 2017, when Mr Nguze also received Sh23.1 million for consultancy work in the months following his resignation in May 2017.
Mr Ngunze’s severance pay is expected to have included retirement benefits in line with the Nairobi Securities Exchange-listed firm’s compensation policy.
“The executive director is remunerated in accordance with the staff remuneration policy. His remuneration package comprises a base salary, pension/gratuity and other benefits designed to recognise the skills and experience of an executive director,” KQ says in the report.
Mr Ngunze earned a total of Sh89.9 million in the nine months ended December 2017, comprising a salary of Sh6.7 million, allowances (Sh538,000), benefits (Sh737,000), the second tranche of the severance pay (Sh58.8 million) and the consultancy fee (Sh23.1 million).
He received a total of Sh70.6 million in the 12 months through March 2017, comprising a salary of Sh39.7 million, allowances (Sh3.2 million), benefits (Sh4.7 million) and the first tranche of the termination benefit (Sh22.8 million).
Mr Ngunze’s successor, Sebastian Mikosz, earned a total of Sh46.6 million in the seven months ended December 2017, comprising a salary (Sh24.6 million), allowances (Sh18.6 million) and benefits (Sh3.4 million).
Ill-fated expansion plan
Mr Ngunze was part of KQ’s executive team that implemented an ill-fated expansion binge dubbed Project Mawingu and which the airline has been climbing down from in recent years at a heavy cost to shareholders and creditors.
KQ, for instance, continues to incur losses from its decision to sub-lease aeroplanes to other carriers after it was unable to fly them profitably.
The loss is the difference between revenues earned from the sub-leasing contracts and payments made to primary lessors.
KQ says it incurred an onerous lease payment of Sh755 million in the nine months ended December, down from Sh1.4 billion in the 12 months ended March 2017. The airline has booked expenses of more than Sh4 billion from the controversial deals, it says were necessary to mitigate even larger losses it would have incurred from cancelling the original lease contracts.
Drafters of the Project Mawingu strategy addressed several risks, including funding but did not take into account lack of demand for the enlarged capacity, a key factor in KQ’s woes as seen in the massive debts unmatched by revenue growth.
Mr Mikosz plans to take KQ back on the expansion path with plans to buy 10 new Embraer E190 aircraft.
The airline has slimmed down considerably in the past few years, with the number of aircraft in service dropping to 40 as of December following sale and sub-leasing.
KQ is yet to break its loss-making streak despite extinguishing its massive debt by issuing shares to its creditors, including the government and local banks.
The airline made a net loss of Sh6 billion in the nine months ended December, down from Sh9.9 billion in the 12 months through March last year.
Bureaucrats recently came up with a plan to have the airline run the country’s airports through a merger with the Kenya Airports Authority (KAA), arguing that the national carrier cannot survive as a standalone company.
Under the plan, KQ will take over all the staff and operations of the KAA in a move that will at once expand its services to include ground handling, maintenance, catering, warehousing and cargo.
ALSO READ: KQ gets additional Sh4.3bn from banks