Government to shake up KQ board, management, CS says

Corporate News

Kenya Airways chief executive Mbuvi Ngunze (right) and Group finance director Alex Mbugua when they recently announced a Sh25 billion loss. PHOTO | DIANA NGILA 

By LYNET IGADWAH

In Summary

• KQ management has been blamed for poor decisions that led to a record loss of Sh25.7 billion in 2014/2015.
• The government has provided short term support by way of a shareholder loan of Sh4.2 billion.

Top managers at Kenya Airways will likely lose their jobs before Government releases a proposed bailout package, Treasury Secretary Henry Rotich says.

The CS told a Senate joint committee looking into the affairs of KQ that the Government had demanded major changes, including management restructuring.

“We need to know what caused the loss before having the managers resign,” he said Tuesday at Parliament buildings.

The KQ management has been blamed for poor decisions that led to the airline posting a record loss of Sh25.7 billion in the 2014/2015 financial year.

Among the poor decisions is the lack of foresight in the ambitious Mawingu expansion project and bad decisions on leasing of aircrafts.

The government is considering a Sh60 billion bailout for KQ.

In order to ensure that the company keeps afloat, the government has provided short term support by way of a shareholder loan of Sh4.2 billion.

The amount is intended to help the airline meet its financial obligations, particularly paying off crucial creditors like fuel suppliers.

Additionally, the government has provided support to KQ to access a Sh20 billion bridging facility from Afrexim Bank for working capital.

Mr Rotich said the short term facility and will be received in two tranches of Sh10 billion each.

The government owns 29.8 percent of the ordinary shares of Kenya Airways Ltd, KLM owns 26.73 percent and IFC owns 9 per cent.

Mr Rotich said KLM and IFC were waiting for the restructuring plan from KQ management before deciding whether to participate in the bailout or not.

“For those shareholders, it’s wait and see. But for us, we had to come up with a plan on an interim basis to keep the airline in business,” he said.

Issues surrounding the Sh25.7 billion loss include flat revenue growth, a 107 per cent increase in fleet ownership costs, 17 per cent increase in total overheads and losses of fuel hedging.

Kisumu Senator Anyang Nyongo said it would make no sense to restructure management and still maintain board officials answerable to the losses.

“Key people that should be answerable to the loss are the board chairman, the chief executive officer, the chief financial officer and the chief operations officer,” said Nyongo.

Mr Rotich hinted at the government is consulting shareholders in order to restructure the airline’s board.

According to Mr Rotich, once the long term capital requirements are firmed up based on the approved turnaround plan, the government, in consultation with other shareholders will review its options, including equity injection and/or loan guarantees