Kenya Airways pays former CEO millions in exit package

The pay of former Kenya Airways chief executive officer Sebastian Mikosz jumped 46 per cent to Sh91.98 million last year as the cash-strapped airline gave him special compensation for leaving office before the end of his contract.

Mr Mikosz’s exit payout, which is disclosed in the airline’s latest annual report, marks the second time in a row that KQ is cutting short the contract of an executive and having to incur millions of shillings in compensation for loss of office.

SH29.02 MILLION

Kenya Airways discloses that it paid the Polish national Sh11.12 million as compensation for loss of office in addition to Sh40.06 million basic salary, Sh29.02 million allowances and non-cash benefits amounting to Sh10.98 million during the review period.

The disclosure means that the former chief executive was forced out, contrary to last year communication by the airline, which had indicated that Mr Mikosz had resigned ahead of the end of his tenure in the country because of “personal reasons.”

“We are grateful to Sebastian for steering the airline through the headwinds and ensuring the airline continued to pursue its strategy. We wish him well in his future endeavours,” chairman Michael Joseph says in the report.

The latest remuneration is in contrast with 2018 when Mr Mikosz received Sh62.89 million comprising Sh42 million salary, Sh16.43 million allowances and non-cash benefits amounting to Sh4.44 million.

The additional payout to Mikosz was a key contributor to the rise in total compensation to the KQ directors by 32.1 per cent to Sh124 million from ShSh93.9 million. This was despite deteriorating performance.

POSTING LOSSES

Mr Mikosz was hired on June 1, 2017 with the promise of turning around the airline’s fortunes that had been posting losses since in 2012. His three-year contract was to end at the beginning of this month.

However, he left at the end of December last year with five months remaining on his contract as the board turned to its subsidiary Jambojet from where it plucked current chief executive Allan Kilavuka.

Mr Mikosz has since joined International Air Transport Association (Iata) as the association’s senior vice-president for member and external relations, with effect from June 1.

In 2018, KQ also had to pay former boss Mbuvi Ngunze Sh58.85 million as compensation for loss of office. He earned a total of Sh104.8 million in his final year at the carrier with part of the pay relating to consultancy works.

This means that the airline has now spent Sh69.96 million in paying released bosses over loss of office, even as the financial muscles of the airline continues to weaken.

Mr Mikosz took over from Mr Ngunze when the airline had made Sh26.1 billion loss in 2016, followed by a loss of Sh10.2 billion the following year.

The Polish left at a time the net loss hit Sh12.98 billion, shining a spotlight on his once much-vaunted strategy that saw the board allow him to hire other expatriates to help him steer the airline.

He led KQ into introducing new destinations such as US direct flights as well as routes to Rome, Geneva and Malindi. However, he left at a time he was mulling to exit some of the traditional routes.

Mr Kilavuka says that KQ’s market share continued to be under intense pressure from foreign State-backed carriers last year. He explains that carriers such as Ethiopian Airlines, RwandAir and Qatar Airways continued to grow their capacities on key routes last year, leading to erosion of KQ market share in key destinations.

OPERATIONAL EFFICIENCY

“KQ’s competitiveness continues to be impeded by high direct operating costs. Due to this, we are focusing on systematic improvement in our operational efficiency and optimising our cost structure,” Mr Kilavuka said.

External auditor, Deloitte Kenya, says the persistent loss, the fact that Kenya Airways’ current liabilities exceeded their current assets by Sh42.155 billion, and the Covid-19 disruption, casts material doubt on the airline’s continued existence.

“These events or conditions, along with other matters as set forth therein, indicate that a material uncertainty exists that may cast significant doubt on the group's and company’s ability to continue as going concern,” warns Deloitte.

The airline, which has an accumulated loss of Sh80.22 billion, is set for nationalisation as government seeks to save it from imminent collapse.

Covid-19 has added a further complication to the business given that Kenya on March 22 banned cross-border flights in order to contain the spread of coronavirus.

The government is taking a cautious approach on calls for relaxing measures such as curfew and containment of Nairobi County as the economy suffers.