Successfully Implementing Turnaround Strategies in State-Owned Companies

EXCERPT from the book, Successfully Implementing Turnaround Strategies in State-Owned Companies: SAA, Kenya Airways and Ethiopian Airlines as Case Studies

KAIZER M. NYATSUMBA

There were far more factors which impacted negatively on SAA’s implementation of its Long-Term Turnaround Strategy (LTTS) than there were factors which had the same impact on Kenya Airways’s (KQ’s) implementation of its turnaround strategy, called Operation Pride. While by far the majority of these factors are attributable to the Shareholder and the Board of Directors (BoD) in SAA’s case, in KQ’s case they are largely attributable to the Top Management (TMT) and the BoD. 

The Shareholder is a big factor in SAA’s failure to implement the LTTS or any prior turnaround strategy. It is the Shareholder that ensured that the airline was never properly capitalised from the moment when it was taken out of the Transnet group to be a stand-alone company, although the loss suffered by the airline as a result of the fuel hedge by former Chief Executive Officer (CEO) Andre Viljoen worsened the situation. It is the Shareholder that lumbered the airline with an unrealistic dual commercial-developmental mandate, and it is the Shareholder that has tied the hands of the carrier’s TMT and BoD with the Public Finance Management Act (PFMA) which leaves it severely hamstrung and unable to make swift decisions in what is a very competitive market. 

The Government, as SAA’s Shareholder, was directly and indirectly responsible for the airline’s failure to implement its turnaround strategies. This culpability included the Government’s choice of Board members, some of whom used their positions to advance narrow political and other agendas, and the choice of CEOs and their longevity in office.

SAA Boards created a situation where many Senior Executives were acting in their positions over extended periods, instead of making permanent appointments. That is the phenomenon which led to former Acting CEO Musa Zwane referring to SAA as “the Hollywood of Kempton Park”. As former Non-Executive Director (NED) Mzimkulu Malunga explained, having Acting CEOs and other Executives made it easy for various SAA Boards to become operationally involved, which suggests that they deliberately did not make permanent appointments because having Acting CEOs and other Executives suited them best. 

Since the CEOs were themselves acting – or, if they were permanent, they were there for a relatively short time – SAA found itself with lack of skills and expertise. Instead, the airline had to contend with the problem of “dead wood” and “people who come to work so that they can go home”, and “people who have been appointed and promoted because of their connections with the previous Board”, as described by former NED Ahmed Bassa. 

KQ, on the other hand, had far fewer challenges which impacted negatively on its ability to implement Operation Pride and other turnaround strategies. Both KQ and Ethiopian Airlines (EAL) were in the fortunate position of not having to deal with any similar challenges directly or indirectly created by their Shareholders or their Boards. On the contrary, they had Shareholders who did not interfere at all in the running of the business, and who left the running of the airlines to their appointed BoDs. 

The facts that KQ was a listed company and that it had Dutch carrier KLM as a majority Shareholder are likely to have been important contributors to the independence enjoyed by the airline’s BoDs and the leadership stability which has taken place over the years. Between the same period (2004-2020) when SAA had 11 CEOs, KQ had only three CEOs.

More importantly, while most SAA CEOs (full-time and acting) left under a cloud of controversy (first suspended and, in a number of cases, eventually paid out), with only Sizakele Mzimela and Vuyani Jarana having left on their own volition, at KQ Titus Naikuni, Mbuvi Ngunze and Sebastian Mikosz all left voluntarily. Although union pressure led to the departure of Naikuni and Ngunze, there is no evidence that pressure or politics from the BoD or the Shareholders forced them out.  

EAL has had a strong culture of independence since its formation in 1946 through a partnership with American airline TWA. Except during the period of political instability between 1975 and 1991, the EAL BoDs have enjoyed independence and the airline has had enviable management stability. Between 2004 and 2020, EAL had only two CEOs, Girma Wake and Tewolde Grebremariam, both of whom were permanent in those positions.  

Project Mawingu – which necessitated Operation Pride in the first place – had by far the biggest impact on KQ. In particular, it was exogenous factors – in the form of a series of acts of terrorism, a fire at Jomo Kenyatta International Airport (JKIA) and the Ebola Virus Disease outbreak in West Africa – which had a terrible effect on KQ’s implementation of that growth strategy. The impact of those factors is incomparable to any other oversight or strategic failure on the part of the KQ leadership team.  

While an argument can be made that KQ may not have sufficiently considered current and future actions of its competitors as it embarked on the ambitious Project Mawingu, there is a good chance that the airline would have realised many of its goals if the aforementioned exogenous factors had not materialised. Neighbouring EAL, which was not as strong as KQ in the market in 2010, managed to exceed its targets for Vision 2025 long before that date.  

Secondly, the mounting losses and growing debts which were a consequence of Project Mawingu had a major impact on KQ’s implementation of Operation Pride. In the end, they forced KQ not only to embark on a Cost Optimisation Plan, but also to turn to the Kenyan Government for recapitalisation. The latter applied pressure on Kenyan banks from which KQ had taken loans to convert their loans into equity, which was something to which they agreed reluctantly after the Government had undertaken to guarantee their loans. 

Thirdly, the growing aggressiveness of KQ unions, in particular the Kenya Airlines Pilots Association (KALPA), made it difficult for management to focus on turning the airline around. Not only did KALPA force Dennis Awori and Ngunze to resign as Chairman and CEO respectively, but it also protested against the airline’s plans to employ foreign pilots – at a time when the airline has a shortage of pilots. Instead, KALPA, which has complained that its members are over-worked, insisted on only Kenyan pilots being employed. 

Fourthly, while it may have made sense to employ Mikosz as Ngunze’s successor on the strength of his success at LOT Polish Airlines, the former appears to have been guilty of a few missteps. His first error of judgment was bringing along with him five compatriots with whom he had worked at LOT Airlines. That decision, early on in his tenure, sent through a message – perhaps unintentionally – that he had no confidence in the Kenyan Executives who had run the airline with Ngunze and Naikuni. It led to the immediate resignation, four months into his tenure, of four senior KQ Executives – among them Information Technology Director Kevin Kinyanjui – and set Mikosz against KQ employees. 

Mikosz also seems to have made little or no effort to understand Kenyans and the way they did things. Instead, he complained publicly, in his fourth month in the job, about “a serious lack of trust, which makes delegation of duties very hard” and stated – somewhat insensitively – that “there is no African way of doing things; there is a good way of doing things or a bad way of doing things”.  

Perhaps unsurprisingly, Mikosz subsequently received resistance from KQ staff and a push-back from the country’s politicians. 

It was also strange that a man who was employed to turn the airline around ended up becoming the agent for its privatisation. It was Mikosz’s Privately Initiated Investment Proposal, which would have seen the private airline running the public JKIA, which the Kenyan Parliament’s Transport Committee seized upon to recommend the carrier’s nationalisation. Mikosz’s legacy, then, looks certain to be the reversal of the 1996 decision to privatise KQ. 

Ultimately, the future of a nationalised KQ remains unknown. It remains to be seen if the airline will be allowed – like EAL – to operate autonomously, with a supportive Government which maintains a hands-off approach, or if the Government will again interfere in the way in which it used to do before the airline’s privatisation. 

So, while SAA’s challenges were overwhelmingly attributable to Shareholder disposition and the BoD, KQ’s were largely a consequence of unforeseen and unforeseeable exogenous factors.

A comparison of the three airlines is captured in the figure below:

Kaizer M. Nyatsumba is a turnaround strategist and the author of Successfully Implementing Turnaround Strategies in State-Owned Companies: SAA, Kenya Airways and Ethiopian Airlines as Case Studies.



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