Kenya Airways chief executive Allan Kilavuka and other top managers have taken a pay cut of up to 35 percent to preserve cash and cut costs amid the coronavirus outbreak that is grounding airlines across the globe.
Mr Kilavuka in a memo addressed to staff Tuesday said the cost-cutting measures, aimed at keeping the company afloat during this difficult time, will also see senior managers at the national carrier take a 25 per cent pay cut and directors work for free. The payroll cuts will take effect on April 1, 2020.
Major airlines have made drastic and unprecedented schedule cuts, bringing operations to a near halt, as demand dries up and draconian travel restrictions get enforced.
Kenya Airways has reduced flights on the London and Paris routes and suspended those to cities like Bangkok, Djibouti, Khartoum and Mogadishu.
“Members of the ExeCom (executive committee) too have agreed to take a 25 per cent pay cut with effect from April 1, 2020 and I have committed to a 35 percent pay cut effective the same date,” the memo said.
“Our board of directors have accepted to forego their monthly fees and sitting allowances with effect from 1 April, 2020.”
The Business Daily could not immediately establish how much Mr Kilavuka, whose appointment at KQ also starts on April 1, will be earning.
His predecessors, Mbuvi Ngunze and Sebastian Mikosz, last disclosed annual salaries of Sh70.6 million and Sh62.8 million respectively.
Mr Kilavuka previously headed the national carrier’s low-cost subsidiary Jambojet.
The pay cut among the executive ranks is seen as symbolic, barely making a dent in the airline’s cost structure.
The airline’s top executives earn less than Sh200 million annually against a total wage bill of Sh16 billion.
But analysts reckon that Kenya Airways could be setting the stage for deeper wage bill cuts in an environment where airlines are calling for State aid to avoid ruin. The airline’s total costs are about Sh150 billion annually, indicating that major savings will likely come from reduction in staff numbers and lower direct costs as aircraft are grounded.
The company has started terminating some of its routes and is expected to shrink its operations further in the coming days as Kenya and other governments cut back on international travel.
By giving up part of their compensation, the executives will save the company less than Sh60 million in 12 months.
Mr Kilavuka said the measures were arrived at following a meeting with the top leadership team. The airline’s board chairman, Michael Joseph, earned Sh18 million in fees in the year ended December 2018.
The other non-executive directors were paid between Sh437,000 and Sh2.2 million over the same period.
The travel restrictions will worsen KQ’s already precarious financial position.
The National Securities Exchange-listed firm made a net loss of Sh8.5 billion in the half year ended June, more than double the net loss of Sh4 billion the year before as costs rose faster than revenue.
The loss saw the company’s negative equity widen to Sh16.1 billion from Sh2.4 billion, underlining its capital crisis.
Turnover in the review period rose to Sh58.5 billion from Sh52.1 billion, representing a 12.2 percent increase.
The government last month provided a Sh5 billion loan to the company to sustain operations and is expected to provide more funds if the airline is to meet its short-term obligations to employees and lessors of aircraft. Airlines around the world have suspended flights, sent workers home and asked governments for bailouts.
Carriers in the United States, for instance, are seeking a bailout in the order of $50 billion (Sh5.1 trillion).
Kenya Airways has so far temporarily suspended flights to and from Guangzhou, China following the outbreak of the coronavirus.
It has also temporarily suspended operations on the Rome-Geneva route to help contain the spread of the virus. Kenya has so far confirmed seven cases.
The airline has also suspended flights to Mumbai, India effective March 17, 2020 to April 15, 2020.
Besides causing major financial losses, the sharp reduction in operations has seen airlines risk losing their landing slots at airports around world.