Return of Fired CFO Presents New Headache for Kenya Airways

Updated on
  • Alex Mbugua’s court victory may set off similar suits
  • Carrier is in midst of debt-for-equity conversion plan

Kenya Airways Ltd.’s court-ordered reinstatement of its former finance director threatens to undermine the newly appointed chief executive officer’s bid to overhaul the debt-laden carrier.

Alex Mbugua, who was dismissed in January 2016, on Tuesday won a High Court bid to be allowed to return to work or be paid three years’ salary plus compensation. His reinstatement was ordered four days after Chief Executive Officer Sebastian Mikosz named Hellen Mwariri as acting group finance director and moved Dick Murianki, who replaced Mbugua last year, to the head of cargo operations. The carrier is consulting its lawyers on the court order, it said in a statement on Wednesday.

“It’s a headache and could be a bigger headache if similar cases emerge for a company that’s trying to turn around,” ICEA LION Asset Management Chief Investment Officer Barack Obatsa said by phone. “Any money that’s going to be paid out is a problem.”

Mbugua’s potential return comes as the company holds crucial talks with creditors on converting 50.2 billion shillings ($485 million) of loans into equity and also plans to create new shares through a stock split, followed by an open share offer to raise as much as 1.5 billion shillings. Mikosz took the helm at sub-Saharan Africa’s third-biggest carrier on June 1 and has since dismissed at least eight senior managers in a restructuring aimed at returning the loss-making airline to profit.

“It’s just incredible and unconscionable and is remarkably activist of the judge to impose such an egregious solution on Kenya Airways, especially at a time when a new management team has been brought in to rescue the airline,” Aly Khan Satchu, chief executive officer of Nairobi-based Rich Management, said in an emailed response to questions.

‘Profit Machines’

Shareholders including Air France-KLM face a dilution of their stakes by as much as 95 percent, while the Kenyan government will boost its shareholding to 46.5 percent from 29.8 percent under the plan. Banks that convert their debt to equity will become the airline’s second-largest shareholder through a newly created company called KQ Lenders Co., according to a shareholder circular issued in July.

“Banks are profit-making machines, they are thinking about their own bottom line and if they are seeing this is not helping them they will not accept it,” Abizer Sharafali, a senior research analyst at Nairobi-based Apex Africa Capital Ltd., said of Mbugua’s reinstatement. “If KQ doesn’t want the CFO, there’s no court in the land than can force him to stay there.”

Kenya Airways stock has dropped 5.7 percent this week, after trading at a five-month high of 6.15 shillings on Nov. 3.

Mbugua, who was CFO of Kenya Airways from 2008 to 2016, was reinstated after the court said the airline failed to justify the grounds for his sacking. The carrier reported four consecutive annual losses between 2013 and 2016, including a 26.3 billion-shilling loss -- the largest in Kenyan corporate history -- in his final year at the company.

Four calls to Mbugua’s mobile phones seeking comment weren’t answered. He was scheduled to return to work on Wednesday, but has been placed on compulsory leave, the airline said in an emailed response to questions.

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