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Why outgoing CEO found KQ top seat too hot to handle

Wednesday December 25 2019

Sebastian Mikosz

Outgoing Kenya Airways Chief Executive Sebastian Mikosz. The new KQ chief executive will need to make the national carrier digital-savvy and deliver data-driven commercialisation. PHOTO | FILE | NATION MEDIA GROUP 

OTIATO GUGUYU
By OTIATO GUGUYU
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Kenya Airways Chief Executive Sebastian Mikosz watched CCTV cameras and witnessed how his workers tried to twist them out of view so they could load tyres into trucks and sneak them out.

The tyres were later traced to a shop where they were being sold openly.

Mr Mikosz could not believe his eyes.

“We found the tyres in a shop. And there was a guy who was not even hiding (the theft). He said ‘these are tyres from KQ’,” Mikosz says gesticulating and, though smiling, he gave the impression of a man frustrated at every turn in his two-year stint at the Kenya Airways where he had been tasked with the onerous responsibility of reviving the airline that had sunk into a deep financial hole.

PROBLEMS AT KQ

He says the theft of the tyres is a microcosm of the entrenched series of problems afflicting the once Pride of Africa.

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“These are just tyres but we have the same problem with fuel, with parts,” he reveals.

The loss-making airline spends Sh5 billion ($50 million) a day and has a long history of staff, suppliers and banks scheming how to pilfer resources from its coffers.

Mr Mikosz says some workers used every means, mainly litigation, to block him from making any meaningful changes in a bid to bring to fruition his overall vision.

This, he adds, coupled with internal wrangles, contributed immensely to his failed bid to turn around the airline that has been riding through a stormy financial patch for years now.

INTERNAL SETBACKS

“The biggest enemy when you are restructuring are not outside (forces). I’m actually not afraid of Emirates, I’m afraid of this (internal setbacks),” he says noting that even if you have board support, you cannot effect meaningful changes in the face of deliberate schemes by workers to scuttle reforms.

Mr Mikosz’s tenure is indeed a litany of legal duel after another.

According to documents seen by Smart Company, after the tyre incident, Kenya Airways sought to reorganise supply chain functions that would have edged out some of the suspects in the syndicates.

However, on December 4, Rose Kosgey and Rosemary Mburu, who are part of the supply chain staff, stopped the process in court saying it was a restructuring process that risked rendering them redundant and that the process was designed by the acting head of supply chain to exclude them.

ENGINEERS

When engineers went on strike over pay, he says, KQ dismissed them, but they rushed to court and were reinstated on grounds that there would be no one to maintain the planes.

When KQ tried to hire 850 contract staff through Career Directions Limited (CDL), Africa Cargo Handling Limited and Insight Management, and the CDL itself, filed a claim of Sh68 million as severance pay for early termination of their contract.

The three firms are listed as interested parties in a suit by the Kenya Aviation Workers Union (Kawu) against the process.

The court last week stopped KQ from hiring staff on temporary terms following an application by the airport workers union.

The CEO says it is not just workers who gave him a hard time.

CONTRACTS

He faced huge opposition terminating contracts with suppliers and brokers even though the deals had exit clauses.

He says he used an August 2016 audit report by Deloitte to “simplify, narrow down and reduce the number of suppliers” and then rotate staff in procurement to reduce familiarity with the suppliers. This process, too, ran into headwinds although he managed to effect some changes.

“We reduced the number of suppliers but, according to me, you can still reduce them by one third. But it takes a lot of time. For example, for spare parts contract, we needed to have a direct contract with Boeing. However, talks with Boeing take too long,” he says, noting that once you clinch a deal with Boeing, you buy straight from them and reduce the number of intermediaries.

“We [also] revised the number of fuel suppliers downwards,” he says.

Mr Mikosz, a graduate of the Institute of Political Studies from France with a Master's degree in economics and finance, says besides laborious litigation, navigating union politics was a tough call.

CONSULT UNION

He said although he has power of doing things, the union insists on being consulted.

“The number of bottles of whisky I took with them (while negotiating) made me almost an alcoholic,” he says.

The feud over pilots' pay spilt into Parliament, where Kenya Airline Pilots Association (Kalpa) claimed Mr Mikosz had lied on certain issues, something that almost earned him a censure. He was, however, later vindicated.

He says KQ pilots are paid a lot of money in mandatory benefits even if they do not spend overnight abroad. They also earn productivity allowance even when they do not fly any planes, he reveals.

“Kenyan taxpayers gave us $750 million (Sh75 billion) of sovereign guarantees and I pay these guys more than British Airways pilots and nobody says anything. And I’m the mzungu bad guy,” he says, hastily adding that “the next CEO who will come will have the same situation.”

ACTING CEO

Last week, KQ board named Allan Kilavuka the acting chief executive officer effective January as Mr Mikosz is set to leave ahead of his contract’s expiry.

Although the Polish has listed numerous reasons why he did not succeed in lifting KQ out of the financial hole, the verdict is still out there on whether he just failed or the circumstances he has outlined genuinely conspired against him.

A number of analysts hold the view that the outgoing CEO did not do enough to revive the flagging fortunes of the national carrier.

“His brief was to turn around the company, close unprofitable routes and make the airline more efficient,” says George Bodo, Director Callstreet Research and Analytics.

Mr Bodo notes that when Mikosz took the job, he knew the airline was unionised, something that faces every other airline. So his position was not unique, he adds.

LACKED STRATEGY

Deepak Kumar of Canada, who has been involved with airlines restructuring in the past, said Mr Mikosz lacked a strategy for generating cash by getting people or goods where they need to be at a profitable margin. Everything else, he adds, was pointless in the business.

“He had very little control over the two aspects that were absolutely crucial to improving cash flow from operations: driving better yields on capacity (revenue per seat kilometre) and reducing the cost per seat,” he says.

“Revenue was hit by constantly cancelling or delaying flights … and whatever is buried in the fuel or currency hedge books.”

The KQ boss’ biggest project — taking Kenya Airways to America — has also been questioned. Mr Bodo says there were other commercially viable decisions than taking the country to the US.

Mr Kumar opines that opening new routes costs money in profit per seat kilometre, money that KQ did not have to spend: “The competition for those passengers was well prepared to take on KQ, and the airline walked into the market at the worst time internally.”

DIGITAL SAVVY

Mr Bodo says the new KQ chief executive will need to make the national carrier digital-savvy and deliver data-driven commercialisation.

“A new CEO should cut the fat and make it leaner, even if it is cutting down unprofitable long routes such as Europe and relying on codeshare agreements with its alliances,” he says.

For Mr Kumar, KQ needs to match its marketing, operational, and financial realities today to its revenue projection going forward. That’s how western airlines did post-9/11.

He says this does not seem to have percolated to senior management at KQ, who seem, at the moment, to be looking a month rather than three years ahead.

“Maximising profits does not have to translate into bad services, poor staff, high fares or creaky planes. Any options will need integrated support from staff, stakeholders, and the State. The board has to pool their interests,” he says.

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