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Kenya Airways CEO quits over government meddling

By Morris Kiruga, in Nairobi
Posted on Monday, 27 May 2019 20:02

Kenya Airways CEO Sebastian Mikosz during happier times. REUTERS/Thomas Mukoya

Far from the turnaround it was hoping for from Polish chief executive Sebastian Mikosz, Kenya Airways (KQ) is now back to the drawing board again.

On Friday, Mikosz announced he would be resigning at the end of 2019, cutting short his tenure – which began in June 2017.

  • Mikosz said he was leaving for “personal” reasons and that he would use the next seven months in office to continue with his turnaround strategy.
  • In an internal memo, he told the staff to expect “some good news concerning our future developments” in the next few weeks.

Many are speculating, however, that the resignation of Mikosz – who was head-hunted to run the loss-making Kenya Airlines after turning around LOT Polish Airlines – has more to do with his frustration at boardroom opposition to his plans and government interference.

Kenya Airways made a loss before tax of KSh7.6bn ($75m) in 2018, up from a KSh6.4bn loss in 2017, which was a nine-month financial year. Its revenue, however, increased to KSh114.4bn compared to KSh80.7bn in 2017.

  • The airline also began direct flights to New York and is working on adding 20 more destinations, including direct flights to Beijing.

Tense board meetings

“With Sebastian Mikosz, Kenya Airways had the best guy it could get,” says Jared Muriuki, a research analyst at Genghis Capital. “His resignation is not surprising though, given the recent developments.” The abrupt resignation also brings to the fore the boardroom tensions within the airline.

  • Mikosz’s resignation was accepted after the airline’s chairman, Michael Joseph, broke a tie in the board’s votes.

Mikosz’s reign has been marked by protracted conflict over a controversial plan to hand over the Kenya Airports Authority’s most prized asset, the Jomo Kenyatta International Airport (JKIA), to the airline.

A report by the Daily Nation said that he had sidelined top managers who were critical. They then “chose to sabotage every step he made, leaking his every strategy before it fermented.” For example, according to the embattled executive: “After cabinet approved the PPP [for the KQ-JKIA deal] and we started the next phase, submitting it, we were accused of hiding it. The moment we sent the proposal, everyone went up in arms and we were accused of all manner of things including how a crooked deal it was.”

  • In an interview after he announced his resignation, Mikosz said he had started out by analysing the strengths of the airlines that Kenya Airways was losing market share to. “I asked myself: What do they do that I do not or what do they have that I don’t? The first thing I noticed is that they have a different purpose of existence.”
  • That “purpose of existence” is primarily that they are government-owned, while Kenya Airways is a public-private company.

Sweetheart restructuring

The idea of a JKIA-KQ partnership, announced late last year, drew criticism from multiple quarters including unions, politicians and analysts. It has since evolved, with a parliamentary committee proposing that the government bring five aviation-related parastatals under one holding company.

Mikosz’s appointment in 2017 was part of a government-led effort to save the airline, which included extensive restructuring, the sale of several airplanes and a loan guarantee.

In 2017, the government’s ownership stake rose from 29.8% to 48.9%, while a consortium of 11 banks took up 38.1% in a debt-to-equity deal. KLM saw its stake diluted to 7.8%.

  • In his most scathing criticism on the restructuring, Mikosz said: “The restructuring was a very sweet deal for everyone except KQ. Banks, lessors and all other parties all got something but the restructuring did not help solve the financial problems of the airline.”

The airline sold two B777 airplanes to a US company and leased several others to Middle Eastern airlines but has been recalling them for its new routes.

The analyst Muriuki also sees the government’s involvement as a big part of the reason why Kenya Airways is struggling. “We generally do not need the government doing business,” he says. There are very few profit-making government companies, he adds, and Kenya Airways’ salvation lies in getting both government support and the freedom to work like a private company.

Mikosz has also been battling claims about his own compensation and the hiring of foreign staff in executive positions. Three weeks ago, he sent a news release to media houses calling claims that he earns KSh8m a month “groundless and unjustified”.

  • Kenya Airways’ latest financial results show that his total earnings rose by 34.7% between 2017 and 2018. He earned KSh62.89m in 2018, up from KSh46.69m in his first year.
  • He also dismissed as false rumours that his wife, Magda Mikosz, sits on the board of Deloitte Kenya, which audits KQ. He said: “Magda worked as a partner for Deloitte Central Europe in the past. When we moved to Kenya, she decided to stop working, leave Deloitte and support me in my current role.”

Bottom line: Kenya Airways now has six months to find a new chief executive – who will most likely be faced with the same challenges that drove Sebastian Mikosz to throw in the towel.

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