How Mawingo Project threw Kenya Airways into a tailspin

Kenya Airways reported a shocking Sh29.7 billion loss before tax for the financial year ending March 2015.

The shock announcement by Kenya Airways management that the airline lost Sh29.7 billion last year has generated heated debate across the country.

Unfortunately, the debates have elicited more smoke than heat and the general public is no better informed about the issues that led to what can only be described as a corporate debacle than when the losses were announced. Investors and analysts are unanimous that the reasons the management gave were mere excuses because many of them were internal and could have been mitigated with a little foresight.

To argue, for example, that the procurement of new aircraft or sale of assets led to the losses is a bit rich because the airline was not forced into either action. Indeed, there is plenty of evidence that some retail investors warned against management’s proposal to implement the Mawingo Project but their warnings were brushed aside.

On hindsight, the entire Mawingo Project was suspect from the beginning because it seems to be the single factor that threw the entire airlines’ operations into a tailspin for the last three years when it posted a whooping Sh45.3 billion in pre-tax losses. Part of the answers investors and taxpayers are waiting for are, surely, just why the project had to be implemented in a hurry.

This is why Treasury Cabinet Secretary Henry Rotich should be commended for appointing an internationally recognised firm to carry out a forensic audit of the airlines’ operations and finances before bailing it out. The purchase and sale of aircraft should receive special attention. The partnership agreement between Kenya Airways and KLM should also be subjected to serious scrutiny following reports that its blatant or subtle abuse may have contributed to the losses.

The message that the government would not leave the airline to collapse needs the support of everyone who understands its importance to the national image and economy.

For starters, it should be appreciated that the collapse of Kenya Airways would do great damage to the country’s quest to become the economic and business hub for East and Central Africa.

Second, the period taken to recover the monies spent expanding and modernizing the Jomo Kenyatta International Airport and other smaller airports across the country would be prolonged unnecessarily. The part of the CS’s proposal that might require further scrutiny is the borrowing of funds to support the airline’s turn-around from outside at a time when the shilling is under intense pressure from the very currencies in which the loan would be denominated.

Perhaps, time has come to think outside the box. Treasury may be persuaded to give the airline the funds it requires to get back on its feet from its current budget and then get the general public to refund the money by buying a special Kenya Airways Rescue Bond. Reports that plans to allow the general public to invest as little as Sh3,000 in government-backed bonds using their mobile phone is at an advanced stage would make the exercise that much easier.

The government may also be persuaded to ask the company carrying out the forensic audit to extend the exercise to reveal why an airline like Ethiopian, which operates in an environment like KQ is making profits while its continental counter-parts cannot survive without state support. If, as has been suggested, the airline needs to have its oil purchases subsidized, so be it.

Lifestyle audit

In short, the national carrier should be given all the breaks it needs to remain one of the country’s best-known ambassadors. But it may consider dropping its tag-line—the pride of Africa—and substituting it with something like “Serving Africa.” After all, the old adage says ‘pride comes before a fall’.

However, the management, past and current, that has brought the once proud airline to its knees should not expect or be given any breaks. The local investigation agencies should be sent to carry out a lifestyle audit of all of them and to identify those who may have profited from the airline’s financial woes.

That would send out the message the government is serious about safeguarding the interests of its citizens and ensuring they get value for their money invested in companies and paid in taxes.