KQ withholds deductions from salaries to aid cashflow

Corporate News

 

By MUGAMBI MUTEGI, pmutegi@ke.nationmedia.com

In Summary

• The delay in loan payments has left hundreds of Kenya Airways’ employees in a difficult position after the banks wrote warning letters to the debtors.
• Kenya Airways said it had alerted its staff of the delay in making the March payments to banks because of the ‘serious cash flow constraints’ that have forced it to prioritise payables.

The depth of Kenya Airways’ financial challenges continued to emerge with Monday’s revelation that the airline has not remitted to banks money it deducted from employees’ monthly salaries to service loans.

The delay in loan payments has left hundreds of the carrier’s employees in a difficult position after the banks wrote warning letters to the debtors.

The pilots have since written to the Kenya Airways management warning that failure to remit the deducted funds was damaging their credit-worthiness.

“It has come to our attention that our members are beginning to receive communication from banks indicating that their loans are falling into arrears for up to two months,” Ronald Karauri, the chief executive of the Kenya Airline Pilots Association (Kalpa), said in a letter to Kenya Airways CEO Mbuvi Ngunze.

“Meanwhile their pay slips continue to indicate that the money is being deducted by the employer. Kindly have this rectified as soon as possible.”

Kenya Airways said it had alerted its staff of the delay in making the March payments to banks because of the ‘serious cash flow constraints’ that have forced it to prioritise payables.

“It is true that this month, March, the remittances based on deductions from staff were delayed. This one-off occurrence was notified to the staff and banks,” Mr Ngunze told the Business Daily.

“In November last year the airline announced a plan to initiate the process of refinancing the company’s balance sheet. This means that in the current context of a weak operating environment, the airline has had to prioritise its payables, including payments for staff-related deductions.”

The revelation comes just days after Mr Ngunze said the airline, which posted a Sh10.45 billion loss for the six months to September, is now paying its workforce of approximately 4,000 employees through debt.

KQ’s total current liabilities stood at Sh70 billion by end of September last year, a situation that forced the airline to hire a financial adviser to help restructure its debt.

READ: KQ reports record Sh10.5bn half-year loss after tax

The airline’s unprecedented action of deliberately delaying its workers loan repayments as part of the effort to re-calibrate its finances is a rare pointer to a company navigating a highly turbulent period.

While KQ insists the failure to remit the monies happened this month alone, Kalpa insists that the loan funds for some employees had not been sent since February, terming it “a serious breach of trust.”

Mr Karauri further states that one pilot had had his credit card suspended since his bank now considers him a risk.

Mr Karuri wrote the letter to Mr Ngunze on March 20 stating that a number of the association’s members had received communication from banks notifying them of the defaults.