Why Kenya Airways (KQ) turnaround will be hard nut to crack

Investors in Kenya Airways stock may be forgiven for believing the appointment of Michael Joseph as chairman will turn around its fortunes. And to demonstrate their faith, they voted with their wallets as demonstrated by the sharp rise in the airline’s stock, making it the best performing counter in 2016.

To be sure, the investors are not alone as the Government—which lured the former Safaricom Chief Executive Officer, also believes in his ability to bite the bullet when necessary and steer the beleaguered airline into profitability.

Analysts who remember his sterling job at Safaricom where he took over a struggling firm and turned it into a regional behemoth in less than a decade equally believe Michael Joseph is the man for the job. Under his stewardship, the airline has the best shot at regaining its lost glory and living up to its slogan — the Pride of Africa.

A more nuanced look at the current airline’s CEO, Mbuvi Ngunze, reveal the man may, after all, have what it takes to turn the national carrier around. This conclusion is borne out of his most recent performance when despite working under pressure from all corners he cut the airline’s losses by more than half. That Mr Nguze did this under the gun when pilots and other key staff were baying for his blood suggests he may be the best man to partner with Michael Joseph.

Indeed, evidence may yet emerge that Mr Ngunze is a hapless victim of circumstances and events were orchestrated to make him the fall guy.

To the analysts, the latest development at Embakasi hark back to the mid-1990’s when the airline had a British national as its Chief Executive Officer and a local well-connected banking and business czar as its chairman. It posted its first profit during this period and went on to out-perform its continental rivals — including Ethiopian Airlines.

But there is nothing to suggest that bringing the airline back from the brink will be easy or painless. All indications are that the journey back will be hard-fought at every turn. Even the people welcoming the appointment of Michael Joseph could well turn out to be some of his fiercest critics.

This is because the airline’s management will need to come up with strategies that will disrupt the business interests of the companies and individuals who have been siphoning off the airline’s money. For in truth, no money ever truly gets lost.

All that happens is that it gets diverted from its rightful place into the pockets of the unscrupulous business people and their partners within the company.

The challenges facing the new executive team are of necessity two-pronged. The first is to get rid of all compromised staff—at whatever level—and irrespective of their political backers. But this has to be done in a manner that makes it clear to everyone that there is no witch-hunt.

The board should also avoid, as much as possible, the usual employers’ knee-jerk reaction of believing the best way to squeeze profit from a company is by getting rid of some of its employees. The hidden danger with this strategy is that it spreads panic among employees and lowers morale at the very time when they should be doing their best.

Secondly, management has to go out of its way to reassure all employees that it knows what it is doing and the airline will soon see better days. Indeed, management might do well to demonstrate to all the stake-holders that the airline’s best years lie ahead.

This will require management to use the multiple platforms at its disposal to demonstrate that it knows what it is doing and is committed to ushering in a brighter day.

At the very least, this might mean the shelving of any talk about seeking for a strategic partner because the country’s history of such partnership has been—to put it mildly—mixed. Memories of the strategic partnership between Kenya Telecoms and its French suitor have been anything but re-assuring. What is clear is that it led to massive retrenchments—with nothing to show for it.