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Is conflict of interest in Kenya now a way of life?

Friday August 28 2015

By LUIS FRANCESCHI
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Numbers speak for themselves, and they have spoken loud and clear.

 KQ has been Kenya’s dream and success story for almost 20 years, since KLM entered into a Shareholder’s Agreement and Master Cooperation Agreement with the Kenyan airline in December of 1995.

Sadly, this dream has been progressively turning into a nightmare since 2012, when the company first reported a decline in revenue.

What turned the beautiful dream into a nightmare? Could it be terrorism? Tourism dropping? African instability? All of them?

To analyse the KQ mess, we should first look at what has happened to the airline business in the region. Kenya Airways is among the top seven airlines in Africa along with Ethiopian, South African, Egypt Air, Tunisair, Royal Air Maroc and Air Algerie.

South African Airways’ Integrated Report says that the airline flew 7.1 million passengers across 186 destinations in 62 countries and ferried 132,000 tones of cargo in 2014.

 Ethiopian Airlines, the largest airline in Africa based on fleet size, has a comfortable 88 international destinations as of June 2015 according to CAPA, a leading provider of independent market intelligence.

Ethiopian registered a record profit of $113 million (US) in the financial year 2013. This is more than all the other African airlines combined. In the same period Kenya Airways lost $106million (Sh9.012 billion by the exchange rate of March 31 2013), and lost Sh274 million the following year. How could this happen?

KQ and Ethiopian share 37 destinations in Africa, with the Ethiopian flag carrier exceeding Kenya Airways by only eight destinations on the continent. Ethiopian’s fleet has a total number of 79 planes against the 42 of Kenya Airways.

When it comes to passengers, Kenya Airways carried about 3.7 million passengers in 42 planes while Ethiopian ferried slightly above 6 million passengers in 79 planes, in the financial year 2014. In the same financial year, South African Airways carried 7.1 million passengers to about 38 destinations around the world.



Source: Centre for Asia Pacific Aviation
Source: Centre for Asia Pacific Aviation

The ticket price is not throwaway on Kenya Airways. A KQ ticket for a direct flight between Nairobi and Addis Ababa is much more expensive, and has far less options, than the equivalent ticket on Ethiopian.

The cheapest KQ ticket from Nairobi to Addis costs roughly £305 while a similar kind of ticket aboard Ethiopian would go for £107.

It is no different when we compare the cost between Nairobi and Johannesburg. Ethiopian offers the cheapest ticket from Nairobi to Johannesburg at £203, followed by SAA at £279 and finally Kenya Airways at £303 (a whooping £100 difference between KQ and Ethiopian).

South African Airways offers the cheapest ticket option from Johannesburg to Nairobi at £255, followed by KQ at £257.  

Kenya Airways ticket prices are not as competitive as those of its rivals in the region, even with regards to its home destination.  Yet, KQ has been far more successful in relative terms; it has ferried many more passengers per plane than its competitors. So what happened?

The numbers do not add up. The reason is not recession, terrorism or a drop in tourism, but simply mismanagement and negligence.

Board negligence is one of the most common sicknesses of directors who agree to sit on boards to gather prestige, cash or simply sitting allowances, but fail in their oversight task. Were Kenya Airways’ accounts studied and analysed by the board? Did they scrutinise them?

Where was the Board when Kenya Airways was showing signs of big losses ahead? These losses are the accumulation of poor planning and lack of oversight over several years.

Mismanagement is the result of a two-pronged dilemma; the inability to say no and the lack of ethical considerations in decision-making.

We simply find it hard to say ‘no’ to anyone. We find it hard to say no to people who may be underperforming, who may be doing the wrong job or who have clear conflicts of interest.

It could be pity, cowardice or laziness; whatever the case, we find it terribly hard to say no. This has become a widespread cancer in the corporate world.

Previous decision-making may also have harmed ethical considerations. The Ndegwa Commission, in its report of 1971, recommended that civil servants be allowed to own private property and run business of any kind only if they met five strict conditions. The most prominent among these was, “no conflicts of interest”.

Over the years, these conditions were watered down until they evaporated in their totality.  The death of these restrictions implicitly declared the sanctity of conflicts of interest, where regulator and regulated could be one and the same person, and it was seen as something good.

 This way of acting has, over the years, permeated the private sector. In many a company the taxi driver is a cousin to the CEO, and the potato provider is the niece to the General Manager, and so on.

I had an interesting conversation with the US head of Government Ethics. He confessed that the biggest chunk of his job has to deal with conflict of interest. Perhaps our biggest problem is that conflict of interest for us means ‘interest in conflicts’. We look for them, we fall into them and we don’t declare them.

A serious audit on the systems of a struggling company like Kenya Airways systems would most probably reveal a sad level of undeclared conflict of interests in procurement, services and whatnot.

Math is painfully simple. It makes no sense for Kenya Airways to make such losses with the number of passengers they transport, the number of flights, the plane occupancy ratio and their ticket prices; it just doesn’t add up.

So the painful truth of such loss seems to be the misuse or misallocation of funds, unethical and undeclared conflicts of interest or poor hiring of staff, or possibly a combination of all the above.

Like happens in any democracy, if tax money is used to bail out Kenya Airways, then the public has a say on who stays and who goes. It seems clear that for many heads, the time to go is nigh.

Dr Franceschi is the dean of Strathmore Law School. [email protected], Twitter: @lgfranceschi