KQ needs to remain agile to fly out of turbulence

Former Kenya Airways chief executive Mbuvi Ngunze. FILE PHOTO | NMG 

By MUGAMBI MUTEGI

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Summary

• Former Kenya Airways CEO Ngunze reflects on his tenure at troubled airline that ended Wednesday, hits and misses and what the future holds.

Former Kenya Airways chief executive Ngunze reflects on his tenure at troubled airline that ended Wednesday, hits and misses and what the future holds.

Mbuvi Ngunze spent his last day in office as Kenya Airways chief executive on Wednesday, marking the end of two years at the helm of the national carrier. Sebastian Mikosz, a Polish national, is the new boss.

A week ago, Mr Mbuvi released KQ’s full-year results, revealing a drop in after-tax loss for the year ended March to Sh10.2 billion compared with last year’s Sh26.2 billion.

The Business Daily had a chat with Mr Ngunze on the national carrier’s results, his tenure and his views on what KQ needs to do to get back to profitability.

What is your feeling about KQ’s financial performance?

This is not a bad place to leave KQ. Why? We’ve cut capacity but carried the highest number of passengers in our history. We’ve increased the utilisation of our aircraft. We are growing in Africa due to improved connectivity.

Our gross profit is up and we have recorded an operating profit of Sh900 million. Our net loss dropped sharply. We are moving in the right direction.

Are we out of the woods? Not fully, but the heavy lifting from the turnaround programme has been done and the focus is now on the capital optimisation programme.

You’ve mentioned capital optimisation several times over the past year. What does it entail and when should we expect closure?

It involves reducing the company’s overall debt so that it is a better match with our valuation. It will also ensure we have the right liquidity to run our business. This is a complex process involving negotiation with our financiers.

The devil is in the detail and the timing is predicated on the conversations we are having. We cannot announce anything until we have something concrete but I am sure we shall have something in coming months.

The balance sheet is not optimal but we know what needs to be done and it shall be done.

What do you see as your biggest achievement as Kenya Airways’ CEO?

Delivering Operation Pride and the sense of confidence that it can be done. We were clear on what we had to do and the fruit of that is becoming clear.

I pay special credit to the management team around me and KQ staff for their resilience despite all the external attention.

We are now at month 15 of the 24 we needed to complete the plan; 72 per cent of it has been delivered. We shall not be fine after that, but in a much better place.

What is your biggest regret? What would you have done differently?

I probably would have moved faster on the turnaround. Hindsight is 20/20 but there are clearly actions we’ve taken in the past year which should have come earlier.

One of them is improving the commercial side of our business; the routes, revenues transformation, sales. We performed a commercial diagnostic immediately I joined and highlighted specific weaknesses.

The unit is now delivering but we could have probably moved faster to implement changes in the first year. As a leader, you always regret when you do not have the right support especially from unions.

I think we could have worked harder to get the unions on our side, especially the pilots. I do not regret the actions I took, but the understanding of what we were trying to do could have been enhanced.

There are people who claim you should have overhauled KQ’s management team immediately you took over. And that failure to do so meant things continued as they were. Your take on this?

There are various schools of thought on this. Some management books prescribe coming out clear on day one, while others advise you do it progressively. There is never a perfect answer to this; it is situational.

That said, more than 50 per cent of the current management team is not the same one I found.  Yes, some of these changes were caused by tough situations, but there is never a perfect time to implement changes.

I think the pace of change was right. Remember, you are dealing with people.

When you were joining, you had expectations about the job. Were they different from reality?

I was clear in my mind that KQ needed to do three things. I knew we needed a commercial transformation, financial restructuring and that we needed to engage our staff continuously.

Probably what I did not anticipate, and which I saw on the job, was the level of effort required particularly in handling the impact of the market on our results.

Five months after I took over, we announced our biggest loss. This was the accumulated effect of the new capacity, Ebola, the fire. I therefore had to prioritise.

I decided to do four things — look for short-term financing, restructure the hub to cut reliance on Kenya and tourism, do a commercial diagnostics and look at cost containment. Six months later, I narrowed down back to the initial three.

There are commentators who say that you inherited a mess and that you did not fully understand what you were getting yourself into. Is that a fair account?

It’s an assessment I have heard before. You can understand KQ’s problems from three different contexts; we had fleet overcapacity, we were hit by multiple negative externalities at once and we had internal weaknesses in our commercial model.

On Project Mawingu, we need to look five years from now to determine whether it was too ambitious or not. Up to 2010/2011, KQ had grown considerably and was justified to think growth.

Maybe what the company did not anticipate was what the rest of the competition was doing, what external environment we would delve in and the support needed like that given to Ethiopian Airlines.

KQ was well within its right to expand, but probably should have been a bit more cautious especially in terms of the phasing.

What do you think KQ now needs to get out of the hole it is?

KQ needs to remain agile. The competitive context is difficult and therefore the ability to sense and respond to the market is absolutely important.

We were caught a bit in the spotlight in the past for our lack of agility, commercially and otherwise. From a financial point of view, we must get the right solid structure.

We are now in operating profit and, barring a disaster, I believe KQ will continue delivering an operating profit.

So, what next for you after KQ?

Michael Joseph has asked me to remain behind for two months as a financial adviser on the capital optimisation plan. After that, I will take three months of well-deserved rest then decide what to do next.