Why Kenya Airways CEO Sebastian Mikosz quit

Sunday May 26 2019

 

By PAUL WAFULA

Sebastian Mikosz, the Polish expat headhunted to turn around Kenya Airways, could not accept defeat.

He could not wait for Parliament to hand in its verdict and opted to jump out of the financial disaster that is Kenya Airways. Insiders say his mode of operation left no doubt that it was either his way or the highway.

KITCHEN CABINET

With Parliament not fully convinced to hand him everything on his wish list, he appears to have settled on the only way to send the strongest message.

Mikosz is not the type of captain who sinks with his ship. Caught between a rock and a hard place, he jumped.

Mikosz, who speaks fluent French, English and Russian in addition to his native Polish, was appointed in 2017 and was seen as the fresh pair of hands that would stop the national carrier’s loss-making streak, largely due to his experience turning around LOT Polish Airlines, the flag carrier of Poland.

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But with his resignation, the loss-making airline has destroyed another chief executive officer. He follows in the footsteps of Mbuvi Ngunze, another CEO who also fell by the wayside.

Insiders say Mr Mikosz dug his own grave after he sidelined top managers who would have been critical to his reign.

Scorned, these managers chose to sabotage every step he made, leaking his every strategy before it fermented. The six polish expats he flew in with him have further helped isolate him from the rest of the team at the airline.

A source says Kenyan managers felt frustrated after they were asked to run any idea they had on turning around the airline through the Polish kitchen cabinet, before pitching it anywhere else.

A powerful board chairman in Michael Joseph did not help his desire to centralise power and decision-making so as to whip everyone into shape and implement his strategy without glancing over his shoulders.

And when his decision to resign was tabled, the airline’s board was split down the middle; three in favour and three against. It was the board chair who would break the tie, in a decisive vote that saw the board accept the resignation.

FEW OPTIONS

When he visited the Nation Centre on Thursday last week, Mikosz sounded like a hunter who had missed all his shots. Despite carrying the weight of the airline on his shoulders, he did not look defeated. He cut the image of a man who was crying more than the bereaved, and was wondering why it was difficult for Kenyans to see just how few options they had been left with to rescue their national flag carrier.

“No one including myself is a miracle man. It is not the CEO that is turning around the airline. He is only leading the direction, but then everybody around must want to turn around the airline,” Mr Mikosz said.

“You cannot make an airline profitable in one year. Unless you allow me to go outside the law, then it is not possible,” he said.

His message was clear: Kenya has no option but to hand him the assets of Jomo Kenyatta International Airport (JKIA), in an amorphous deal that would effectively turn KQ into a state parastatal, and even delist from the Nairobi Securities Exchange (NSE), to give it the ammunition and equal footing to stop Middle East carriers and other regional competitors from eating its lunch.

He said the airline had come out of the publicised restructuring deal with its lenders empty.

“I came in when the airline was finishing a very significant financial restructuring. So when I joined the airline, I was concerned with what was going on,” he said.

“The restructuring was a very sweet deal for everyone except KQ. Banks, lessors and all other parties all got something but the restructuring did not help solve the financial problems of the airline,” he said.

PARADIGM SHIFT

He said the government saved the airline from going into bankruptcy by giving it a sovereign guarantee that allowed it to turn its creditors into shareholders by converting their debt into equity.

He said his strategy was based on three principles — cost-cutting, growth and the deal with JKIA.

“On paper, turning around the airline is extremely simple. You just cut the costs,” he said.

He added his first strategy was to stop the airline from shrinking any further.

“I do not believe that you can turn around the airline by shrinking it. KQ’s market situation is really detrimental and we keep losing market share. We needed to change the paradigm from an airline that is not growing to one that is growing,” he added. He says that is why he refused to sell any more assets of the firm.

“When I came, everyone was telling me sell this, sell that, sell this you will have cash. But when you start selling the company, it never stops. You have to use the assets that the company has to make money,” he said.

He said at the time, everyone was convinced that the airline should not buy any more aircraft or start any new destination.

“Let us just stay silent in our corner and nobody will notice it,” he said of the situation back then.

The other decision he had to make was around costs and this, he said, made him very unpopular at the airline.

MAIN COMPETITORS

“These are the most unpopular decisions you can make because it creates a resistance that partly has contributed to leaking of information. This airline is like an open box, the more I put something in secret on paper, the faster it gets out,” he said.

The JKIA deal, he further added, completely went out of control.

“You cannot grow and have a sustainable airline if all your competitors are state-protected and your mandate is to get dividends,” he said.

He argued that the ground for Kenya Airways is made uneven by the shareholding structure of its rivals. Its main competitors — Ethiopian, RwandAir, and the three Gulf carriers — are all 100 per cent state-owned.

This means that to compete them, KQ would need the kind of muscle that only governments can offer.

The Kenya Airports Authority (KAA) did not help after it questioned the financial viability of the deal given that KQ was the firm in the doldrums. Unions have never been on its side. They have also been demanding for the removal of the CEO and his management team.

Instead of focusing on the turnaround strategy, Sebastian found himself having to explain just how much he and his expats earned.

Mikosz says when he came in, he did a humility test to know why his competitors, among them Emirates, Qatar, and Ethiopian airlines were doing well when KQ was hurting.

NO DIVIDENDS

“I asked myself: What do they do that I do not or what do they have that I don’t? The first thing I noticed is that they have a different purpose of existence.”

He said he was torn whenever he arrived at the airline’s annual general meetings and shareholders kept asking him why he had no dividends for them.

“You are asking dividends from a company that is in negative equity for the past five years; you want dividends from a company that needs to invest for the next ten years every penny it makes to catch up with the competition and also run away from arriving competition,” Mikosz said.

It is this reason that saw him push for the JKIA deal, asking the government to buy it.

“That is why I am asking for the same instruments the competition has. Basically, create a system in which state-owned assets are not competing but co-operating and functioning in a cross-subsidising principle,” he said.

He, however, said the plan was never to take over the airport but rather to just enter into a partnership that would see the balance sheets of the two entities combined into one. He said he hid nothing from the public and it was just a case of the news being leaked too early before the process actually began.

NARROW LOSSES

“After Cabinet approved the PPP and we started the next phase, submitting it, we were accused of hiding it. The moment we sent the proposal, everyone went up in arms and we were accused of all manner of things including how a crooked deal it was,” he said.

On Friday, he threw in the towel and informed staff that he had made the decision to shorten his contract term and resign on personal grounds effective December 31.

“It is my personal decision and I have obviously discussed it with the board as well as my family. I believe that this is the ideal timing to begin a transition process to find someone who will continue with the turnaround initiatives that we began three years ago,” Mikosz said in the memo to staff.

He said he will in the remaining seven months continue delivering the improvements that he has been executing.

His quick wins include finalising the deal that saw banks convert their debt into equity, lifting a repayment burden that was choking its cash flows. He also counts the direct flights to the US started by the airline as another feather in his cap.

The airline has managed to narrow its losses from a historic loss of Sh25 billion in 2014 to Sh7.5 billion.