China virus clips Kenya Airways’ wings despite peace deal with pilots

National carrier is searching for new chief executive to replace Mikosz who left in December

Kenya Airways (KQ) last week got the agreement from pilots to hire additional captains after more than two years of push and pull on who and how to hire.

It was a win of sorts for the airline that has been struggling with pilot shortage for the different aircraft types it operates.

This prevented the carrier from efficient use of its fleet, even hampered opening of new routes while the pilots have had to forego their leave days as they were almost always on call.

The sliver of light was, however, blotted by another curve ball when the national carrier had to suspend flights to China as a precaution against the coronavirus.

The Chinese city of Guangzhou is one of Kenya Airways' largest markets. It is a dear route for the airline where it makes as much as Sh23 million every day in revenues, according to its most recent financial report.

KQ is in the middle of executing a turnaround strategy and while it has diversified its routes such that no market accounts for more than 10 per cent of its earnings, it can ill afford to give up revenue streams considering the billions of losses it has made in the past.

The carrier has already warned that losses will deepen when it announces its results for the just-ended financial year.

This adds to the other issues that the airline has on its table this year, some of which might prove to be significant challenges.

The airline is undergoing transition at two levels – the anticipated change in the shareholding structure with the planned nationalisation, and the hiring of a new chief executive after the exit of Sebastian Mikosz last year.

With the nationalisation are a host of other changes expected in the aviation industry, including the formation of a holding company that will own KQ and other aviation agencies, as well as hiving off the Jomo Kenyatta International Airport from Kenya Airports Authority (KAA) into a standalone company.

While the airline may argue that there is no vacuum at its C-Suite following the appointment of Allan Kilavuka as the acting chief, an ideal position would be to have a substantive boss to oversee the changes as well as continue with the turnaround strategy that the former chief executive and the board had started.

The airline has in the past said the process of hiring Mikosz’s successor commenced after he made his decision to quit last year.

It would, however, not give details about the recruitment process including whether it has been opened up to different corporate big wigs that might feel they have capabilities to turn around the airline.

It was also mum on whether there is are select candidates it might be scrutinising for the job.

The planned change in shareholding structure - with the government expected to be the sole shareholder - might complicate or lengthen the process of hiring the chief executive.

KQ chairman Michael Joseph declined to answer the questions we posed to him, only confirming that the process is ongoing but without details as to what stage the board had reached.

“Unfortunately I cannot answer all your questions other than to say that the process is still on-going and we will make an announcement in due course,” he told Weekend Business.

Even as it grapples with the search, the airline will have to do with reduced earnings after it stopped flying to China following the outbreak of the coronavirus after a few days of hesitation.

KQ said it would suspend its flights “to and from Guangzhou starting Friday January 31, until further notice”.

It is uncertain how long the flights will stay suspended as the Chinese authorities try and contain the virus, and it will without a doubt dent the carrier’s revenues.

According to its annual report for the year to December 2018, Kenya Airways earned Sh8.5 billion from the flights to China, translating to about Sh23 million per day. The airline operates two daily non-stop flights between Nairobi and Guangzhou three times a week.

While KQ clarified that “no single external customer contributes 10 per cent or more of the group’s or company’s revenues” it is still a lucrative route having contributed 7.5 per cent of the Sh114.18 billion revenues the airline earned in 2018.

KQ had earlier in the week said it would not stop flying to the Asian nation, insisting that it was undertaking necessary precautionary measures including not flying anyone not cleared by the Chinese Port Health and sterilising aircraft.

In addition to the Chinese market, it said, the route was critical for passengers connecting to and from other destinations.

The suspension came after widespread pressure, with the Kenya Aviation Workers Union, saying its members would boycott work if the airline did not stop flying to China.

It was also against a travel advisory by the government that cautioned against all but essential travel to China while Kenya’s ambassador to the country had also asked the airline to suspend flights.

Major airlines around the world also suspended flights to China. KQ's main competitor, Ethiopian Airlines, however continues to fly to China and on Thursday denied earlier claims that it had suspended its flights.

In a statement, the airline said it was “operating our regular flights to all of our five gateways in China; Beijing, Shanghai, Guangzhou, Chengdu and Hong Kong with the usual supply and demand adjustment that we always make during the Chinese New Year Holidays”.

It is however not all gloom and uncertainty for KQ, which saw the Kenya Airline Pilots Association (Kalpa) soften its stand on the recruitment of additional pilots.

The powerful association, which has in numerous instances grounded flights as it fought management for what it said were the rights of local pilots, signed an agreement with KQ allowing it to recruit local and foreign crew.

KQ said shortage of pilots cost it Sh5 billion last year as flights were cancelled or experienced delays.

The airline currently has 444 pilots and said it needs another 53 pilots for the current fleet of aircraft.

Kalpa has in the past questioned the hiring of foreign pilots, citing contravention of a pact it made with the airline in 2018 that allowed for 'Kenyanisation' of pilots.

It moved to court to have the airline stopped from hiring foreigners to fly large aircraft but the two settled out of court. As per the agreement, KQ will hire Kenyans on a permanent basis while foreign pilots will be hired on two-year contracts.

Both foreigners and locals will be entry-level pilots while existing pilots will be promoted to fly larger planes.

"To bridge this gap, while facilitating enhanced in-house pilot promotions and training, both parties have agreed for a period of two years ending January 1, 2022 that – KQ may employ 30 direct entry captains on the Embraer 190… this will comprise Kenyans on permanent terms and non-Kenyans on specific contract terms," read the agreement signed by both parties.

"Non-Kenyans captains will be employed on two-year contract.”

In a memo to its members, Kalpa explained that the agreement was necessary and would give the airline time to sort out the shortage of pilots that has existed for more than a decade, as well as give it an opportunity to improve performance.

“Despite the numerous policy changes by KQ management, the company’s financial performance still requires significant improvement to get KQ back to stability and profitability,” said the memo by Kalpa General Secretary Murithi Nyagah.

“Pilot shortage is an issue that has been with us for the last 15 years. This was further worsened with the attrition we witnessed in 2016-17, with more than 140 colleagues leaving KQ, thus complicating an already desperate situation.”

“In as much as KQ would desire to grow its network and equipment, the pilot-shortage headache has been a persistent hurdle that is impeding growth, and in effect curbing much needed increase in revenue,” he added.