Kenya Airways (KQ) is operating on the red and is unable to fully service its debts, the CEO Allan Kivaluka has revealed.
In a letter to employees that is in our possession, Kivaluka informed the staffers that the company would be cutting employee salaries by between 5 percent and 30 percent for employees earning Ksh45,000 and above.
“We listened to your feedback to consider using pay ranges as a variation of pay rather than Hay grades due to the significant pay discrepancies across several grades. We, therefore, propose that the variation of pay across the company be based on pay ranges. The salary used to determine the pay ranges is your basic pay and all fixed allowances,” said Kivaluka.
Kivaluka also told the workers that the company is not able to pay any accrued amounts, and could not give a timeline of when the workers will be paid.
“We cannot pay these amounts, and further, we do not have a timeline when payment will be possible. Our proposal, however, is that, as soon as we get a sustainable cash injection that can cover our overdues, we will, at that time, commence discussions on the payment of the deferred salaries. Similarly, should our financial situation and ability to pay improve significantly, we will redeem the deferred amounts,” he added.
Kivaluka revealed that the national carrier has been unable to service its debts owed to suppliers, following government failure to inject capital.
“I have previously communicated that the company has been struggling to meet its financial obligations. We owe our service providers and you, our employees, significant amounts. Our financiers and the Government of Kenya are also challenging the deferred pay arrangement as it is unsustainable,” he says.
“In December 2020, we informed you that our company debt had reached unsustainable levels, leaving us with no option but to stop further accruals. We have been in discussions with our existing suppliers to give us concessions on the existing debts and reduce monthly payments from now on. A number of them have already agreed to do so”.
KQ is 48.9 per cent owned by the government and a group of 10 local banks that hold 38.1 per cent of its shares
KQ posted a Ksh12.9 billion loss in the year ended December 2019.
This is a 71 percent increase in loss as compared to Ksh7.6 billion loss posted in the year ended December 2018.
It is expected that for the year ended December 2020, the situation could be worse since the carrier grounded most of its planes over Covid-19 lockdowns.
The government is mooting plans to fully nationalise KQ, before injecting any capital.
“We are not making any commitments at this stage. Kenya Airways need to remain afloat but it is also important to look at structural challenges because what is happening now is more than the business environment,” said Treasury CS Ukur Yatani last year.
Under the nationalisation plan, KQ will be a subsidiary of an aviation company alongside Jomo Kenyatta International Airport, an aviation college and Kenya Airports Authority, which will operate all other airports.
Last year, KQ announced plans to fire at least 207 of its 414 pilots in the next three years in cost-cutting measures.
According to the cash strapped carrier, the pilots’ salaries amount to 45 percent of its payroll costs, despite pilots being only 10 percent of the workforce.
KQ expects that the move will save it Ksh3.24 billion every year. In the year ended December 2019, the company total wage bill to pilots only amounted to Ksh6.48 billion. This translated to Ksh1.3 million per pilot per month.