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The CEO hanging on a wing and a prayer

By Macharia Kamau | September 15th 2020 at 07:00:00 GMT +0300

Kenya Airways CEO Allan Kilavuka during the launch of the resumption of international flights at the Jomo Kenyatta International Airport (JKIA) Nairobi on August 1, 2020. [Elvis Ogina,Standard]

Back when he had some downtime, Allan Kilavuka would counsel young couples looking to get hitched.

Yes, the man running Kenya Airways says he would volunteer as a pre-marital counsellor, not so much to unwind but to help people. This helped him get his mind off work, and for him the saying that a change is as good as a rest held true. But why counselling?
 
“I try to do acts of kindness, a principle called ‘becoming human’, which is an idea I came across in a book. It challenges one to give of themselves to other people without expecting reciprocity,” he told the Financial Standard.
 
But Kilavuka, who has a certificate in psychology from the University of Liverpool, no longer has the time to do this these days owing to the high demands of running a national carrier. And he’s carrying out one of the toughest jobs in town on an 80 per cent pay cut.
 
KQ’s finances are weak, with the airline facing a daunting list of problems: litigation, with hundreds of millions of shillings on the line; restrictions imposed by Covid-19; a largely demoralised workforce; and rigorous scrutiny from Parliament.
 
To make matters worse, Kilavuka inherited a company that has been struggling for years. In the airline’s latest accounting results, it reported a net loss of Sh14.3 billion in the first half to June 2020, a 67 per cent decline compared to the Sh8.6 billion loss that KQ reported over a similar period last year. The loss for this latest six-month period is now bigger than what the airline posted for the full year in 2019, which was Sh12.99 billion.
 
Will his marriage-saving skills help save the national carrier? It’s a big ask.
 
In mid-March, nearly all the airline’s operations were grounded except for cargo, which earned limited revenue. Even so, KQ was unable to take full advantage of the cargo business due to few freighters operating during the peak of the Covid-19 pandemic. Over the first six months of this year, cargo volumes went down by more than 9,000 tonnes to 22,451 tonnes from 31,819 tonnes over a similar period last year.
 
The carrier also slashed staff salaries by between 25 per cent and 75 per cent, depending on the job cadre. Kilavuka has to ask these same people to continue working, with no end in sight on when the airline’s fortunes will change for the better. He also has to convince investors and
shareholders that the new KQ strategy will work. Opinion remains divided on this, and analysts offer a variety of ideas on how to restore the airline’s fortunes, a process complicated by Covid-19.
 
Recruitment freeze
KQ had recently announced it would cut around 590 jobs. After taking into account a recruitment freeze, natural attrition and the take-up of voluntary departure schemes, a potential 3,100 staff will be left behind. The decision to cut jobs was taken in light of the long road to recovery owing to the debilitating impact of the pandemic, and the urgent need for the airline to adapt to an uncertain future. As previously indicated, KQ expects to operate under 50 per cent of its capacity at the end of the 2020-21 financial year against pre-Covid levels.
 
Relative to most major airlines in the world, it is in an even more vulnerable position as it does not have much of a domestic market, which would have been the first to see a recovery. To remain viable in this uncertain landscape, the airline will operate a smaller fleet for a reduced network compared to their pre-Covid operations in the coming years.
 
To prepare for this future, the carrier must take on tight cost control measures. This momentous task ahead is what gives Kilavuka sleepless nights. The CEO said the airlines’ priorities from the get-go were to ensure survival and save as many jobs as possible, but he expects the recovery to be long and fraught with uncertainty. In overseeing KQ, his vast experience at GE and a stint at Jambojet will come in handy.
 
But to begin with, he is rooting for the separation of KQ shareholders, through renationalisation of the carrier, something that was already in progress when he joined the airline. As part of a wider recovery strategy, the firm is in talks with the companies it has leased planes from and they have to agree to lower rentals as the industry continues to experience low passenger demand.
 
The CEO is also banking on the process of renationalisation to gain the confidence of the market and speed up recovery. But he has to get the buy-in of naysayers first. While the global aviation industry is set to start recovery in 2021 and possibly normalise by 2022, KQ expects Kenya’s elections scheduled for 2022 to affect travel demand. It expects to start full recovery in 2023.
 
Before he was headhunted to run Jambojet, the low-cost carrier owned by KQ, Kilavuka had previously tried getting a job at the airline. Twice he had been interviewed for the jobs of chief planning officer and finance director. Twice, he was nearly hired but walked away over terms. While he did not reveal the details, chances are that Kilavuka had then wanted a bigger paycheque.
 
“I did have some job interviews before, directly with KQ. I was interviewed for the position of the corporate finance and at some point the position of finance director,” recalled Kilavuka. “In both interviews I was successful but we could not agree on the terms of employment. Looking back, it seems my fate is tied to KQ.” As fate would have it, however, he ended up taking on bigger responsibility at the national carrier, but at its worst time and at much lower pay.
 
Aside from the complications brought about by Covid-19, KQ has had its challenges in recent years and has not reported a profit since 2012. This could mean undoing a mess that happened way before he entertained thoughts about being at the carrier’s reigns. Airline’s troubles Kilavuka says he rarely gets to think about the origins of the airline’s troubles – his focus is how KQ can get out of its current predicament.
 
And his new role meant giving up the relative comfort of working as the chief executive of Jambojet, which he remembers affectionately as being fun and agile. He could also be in a safer environment at the global giant, GE, crisscrossing Africa, and possibly got an even bigger role with a more global outlook. He, however, does not regret the career moves he has made. “From my background – both training and upbringing – when you set out to do something, do it with all the energy and all the focus to get the best possible results.
 
“It is not so much about looking back but looking forward to see what I can make with what I have been given or what I have inherited. I do not see it as a burden. For me, it is a calling to fulfil a very important responsibility for employees, our stakeholders and the country.”
 
A teetotaller, Kilavuka grew up around the tea bushes of Kericho and Nandi, where his father worked in tea estates. To date, he has fond memories of the business and says tea is among his favourite beverages. He also believes being shipped early to a boarding school helped him develop traits that have stuck with him to date as he walks the corridors of KQ trying to give it new shine: independence, discipline, acceptance of different world views and being open to ideas from his employees.
 
“Boarding school exposed me to people from different parts of the country early, in fact, some were from Uganda. It also built a lot of independence and discipline. The primary school was strict and Anglican based, which helped build my spiritual side,” he said.
 
The unfolding crisis has seen Kilavuka navigating an airline that was teetering on the edge of insolvency and is badly in need of a bailout. KQ last year underwent a series of capital and debt restructuring that elevated taxpayers to the biggest shareholders. KQ is 48.9 per cent owned by the gov-
ernment and a group of 10 local banks that hold 38.1 per cent of its shares.
 
Other shareholders include KLM Royal Dutch Airline (7.8 per cent), employees (2.4 per cent) and other shareholders at 2.8 per cent. The Treasury last year injected more than Sh5 billion into the airline and is currently evaluating another cash injection to help the carrier cope with revenue losses during the pandemic.
 
Covid-19 has brought about newer challenges, including a need to reduce the carrier’s fleet of aircraft or have the owners of planes – as some are leased – take a pay cut too. It has also thrown into a disarray a turnaround plan initiated by Kilavuka’s predecessor, Sebastian Mikosz.
 
But Kilavuka says he considers his job a calling. “Initially, when I took up this role, I was focused on execution and getting it done, so I did not stop to think about the company that I would be running,” he said. “KQ is not only one of the largest companies in the region, it is also one of the most complex companies. We also have extremely qualified people, complex machines and systems, and it has a lot of sentimental value among Kenyans.
 
“When all these things dawned on me, that’s when I realised that it is more of a calling than a job. There are so many people looking up to KQ to fulfil a mission – not just employees but industries as well.” Kilavuka studied commerce at the University of Nairobi.
 
At the time, he harboured dreams of being a banker but would later go into accounting when he started at Deloitte. He later joined GE, where he held several roles, including setting up a number of offices across Africa. “I wanted to be a banker. I understand money and how to deploy it. I thought it would be easy to slide into banking,” he said, adding that after many moments of doubt and later seeking advice, he decided to join the field of accountancy and joined Deloitte.
 
In 2018, while still at GE, he was headhunted to lead Jambojet. He had little knowledge of aviation, having interacted only with GE Aviation’s customers, which gave him just an inkling of the complex industry. Jambojet, owned by KQ, is a budget airline. "I enjoyed my time at Jambojet. There I
learned the most important thing if you want to be successful in leadership is a good team. Jambojet has a fantastic team that is agile and independent.”
 
His stay was short-lived. He was initially tapped to work as the acting chief executive at KQ but would later be confirmed for the post. “Towards the end of my acting stint, they approached me again and said they had observed me over the period I was in an acting capacity and they saw no reason to pick anyone else over me.”
 
This would have meant a bigger pay cheque. Unfortunately, he began as a substantive CEO at KQ on April 1, when Covid-19 had seen the carrier ground nearly all its operations. Among the major announcements, he made in late March as he assumed the positioned of CEO to staff was that they had to take pay cuts. He led by example, taking the deepest of the cuts at 80 per cent. While he is evasive about his pay, he noted that it is in the interest of everyone at KQ to sacrifice now for the sake of the future.
 
“We do not have sufficient money to pay full salaries. It is important for employees to understand that we are working towards future sustainability of the airline,” he said. Other mechanisms included taking unpaid leaves. The staff unions, however, went to court and got an injunction restraining KQ from firing its members. The courts further asked the union and management to talk and find a middle ground. Other than the employees, he has to engage with the companies that KQ leases some of its aircraft from. He said the airline has put in requests to lessors “to reduce the rentals by 40 per cent or charge us utilisation-based rentals so that we pay for only what we use”.
 
Unit yield
The carrier has also been in discussions to convert passenger planes to cargo planes. This could see the rental paid on such planes reduce, something the leasing companies might not be comfortable with. “In principle, they are okay with it. We are trying to agree on the rentals. The unit yield for cargo is lower than for passenger planes. The cargo flight cannot cover the cost a passenger flight can cover,” he said. At the same time, Kilavuka has been charged with overseeing the renationalisation of the carrier.
 
Much of this is being handled at the shareholder level, including the negotiations on how to deal with the other owners – KLM and KQ Lenders (a consortium of banks which converted loans to shares) – as well as the legal framework by Parliament. But he has to preach the gospel as the spokesperson for the airline whose ownership is reverting to government. He notes that nationalisation is just a tip of the broader picture, which is the transformation of Nairobi into an aviation hub, with such assets as KQ and the Jomo Kenyatta International Airport as among the key enablers.
 
This, Kilavuka noted, cannot be achieved if KQ remains privately owned as shareholders would always expect a return on investment and cloud the bigger picture. “The idea is not just nationalisation but how to reform the aviation sector. The sector needs to grow. How does it grow? It will grow if the assets are consolidated and are working in tandem with each other and cross-subsidising each other,” he said.
 
“The whole point is to have JKIA as a preferred hub for Africa – both for cargo and passengers. That will happen by having both the airport and the airline growing. This cannot happen if a portion of the airline is in private hands.”

Allan Kilavuka Covid-19 Jambojet
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