Michael Joseph's chequered KQ legacy as he heads for exit

After nearly a decade as the chairman of Kenya Airways (KQ), Michael Joseph is set to retire from the national carrier’s board of directors next month, ending a career marked by many highs but also numerous lows. 

During his tenure, the airline posted its worst-ever ="https://www.standardmedia.co.ke/business/article/2001480358/kq-records-sh217-billion-loss">losses in 2022< but also turned a profit last year, these two perhaps characterising the different ups and downs KQ experienced under his leadership.

Another high that KQ experienced during his tenure was finally getting the clearance to operate direct flights to the US, which eluded Kenya for years. Joseph also experienced rejection of some of his proposals that were seen as key not just in turning around KQ but in transforming Nairobi into an aviation hub. 

Such included the initiative to have KQ take over and operate the Jomo Kenyatta International Airport (JKIA), which was also part of the plan to nationalise the airline, as well as the untimely exit of Sebastian Mikosz, who was hired in 2017, months after Joseph took over and was viewed as the turnaround master plan to reverse KQ’s slide.

The carrier on Thursday said Joseph, who has chaired its board of directors since 2016, would retire and “is not eligible for re-election having attained the maximum tenure under the board charter.”

He was re-elected for a second three-year term in 2019 and again in 2022. 

When Joseph joined the carrier’s board, many watched to see if he would replicate the success that he had at Safaricom, which he started from scratch 25 years ago and steered to the regional giant that it is today.

For the nine years that he has steered the carrier as its chairman, KQ went ="https://www.standardmedia.co.ke/sports/news/2001460332/www.digger.co.ke">deep into losses< and posted its worst net loss of Sh38.26 billion in 2022. It clawed its way out of loss making to report a profit of Sh5.4 in the year to December 2024, reporting a profit for the first in 11 years. 

Other than the growth in revenues and cost-cutting measures, the return to profitability has also been, partly helped by government taking over some of its legacy loans that have for years been a drag for the carrier.

And while the carrier celebrated emergence from a decade of loss-making, analysts are cautious noting that it is still in a negative equity position, with its liabilities of Sh297.36 billion exceeding its assets of Sh179.1 billion by Sh118.25 billion.

During Joseph’s tenure, KQ made major proposals aimed at turning the carrier around, but also positioning Kenya as a regional hub. 

He publicly defended the proposals and is even said to have lobbied the National Treasury behind closed doors to agree to some of them, but many of them fell through. 

These included the proposal to take over JKIA in 2018. KQ’s proposal failed, with different stakeholders making different arguments against the move, including the carrier being loss-making at the time and could be a drag for the region’s biggest airport, as well as the carrier being partly privately owned while JKIA is a public asset. 

The proposal would years later be revived and the airport handed over to India’s Adani Airport Holdings, which was expected to operate it for 30 years. This, too, kicked up a storm and President William Ruto cancelled the tender award. 

A later proposal to nationalise KQ also featured the components of KQ’s Privately Initiated Investment Proposal (PIIP) on JKIA.

The nationalisation had been proposed through the National Aviation Management Bill, 2020, which would see the government edge out other shareholders, although at the time this was unclear whether it would convert its loans to the airline into equity or buy-out other shareholders. 

The government has a 48.9 per cent stake in the airline, with a consortium of commercial banks – KQ Lenders Company 2017 Ltd – owning 38.09 per cent. The banks converted their loans into equity in 2017, a restructuring that also saw KLM’s stake diluted to 7.76 per cent.

KLM, which has had a bitter-sweet relations with the carrier since it came on board in 1995 as a strategic partner, previously had 26.7 per cent shareholding.

The plans to nationalise saw KQ shares suspended from trading at the Nairobi Securities Exchange in July 2020. The suspension was lifted in January this year.

In addition to making KQ wholly government-owned, the Bill had also sought to set up a holding company – the Kenya Aviation Corporation – which would be an umbrella entity owning state run aviation sector firms such as the KQ, the Kenya Airports Authority, which also owns JKIA, and the Aviation Investment Corporation. The model proposed in the Bill somehow borrowed from how Ethiopia, which has been competing with Kenya as an aviation hub, runs its aviation industry.

The country has an aviation holding company that owns Ethiopian Airlines, as well as the Ethiopian Airport Enterprise that owns Addis Ababa Bole International Airport and other aviation companies.

Joseph had defended the proposal to take over operations at JKIA and also nationalise KQ, noting that it would put the carrier on a level playing field with other airlines that compete with it in flying passengers to Kenya and Africa from other parts of the world, including Ethiopian Airlines, Emirates and Qatar Airways, where the operations of the carriers and their main hubs are intertwined. 

While making a pitch for KQ to operate in a similar manner, Joseph has in the past said the airline needed to function in sync with the objectives of positioning Nairobi as a key hub.

“When you look at competition and what they are doing, that is better than what we are doing... they [airlines and airports] have the advantage of being owned by one holding company,” he said at a past event.

“If you look at Dubai, there are many companies that have their African headquarters offices there. They [the companies] should be [headquartered] in Nairobi,” he said.

At the time, he noted that while Nairobi’s geographical positioning should be an advantage for connecting flights to Africa, Middle East, Asia and even Europe, its had failed to build JKIA as a hub and has also not empowered  KQ to be the airline of choice for passengers on transit to these destinations.

Where Kenya and KQ failed, the Middle Eastern carriers and, to an extent, Ethiopian Airlines, had succeeded. 

“Dubai has the connectivity of Emirates; with the airline, you can fly anywhere from its hub in Dubai. Our idea is to create something similar here so that Nairobi becomes the centre of aviation in Africa and companies can be headquartered here and bring jobs to the country,” said Joseph. On nationalisation, he noted that the competitors are also state-owned and, at times, benefit from state subsidies or are given certain exemptions.

Another of KQ’s bold plans that failed to materialise included a partnership with South African Airways. The two carriers signed a partnership framework in 2021 that was expected to see them form a Pan-African airline. SAA has had its fair share of challenges and has been undertaking a review of its business.

The two carriers had planned to bring onboard another airline, most likely from West Africa, into the partnership and form a continental airline that would deepen travel in Africa and take advantage of procuring supplies, such as fuel, in bulk.

During his tenure, KQ ="https://www.standardmedia.co.ke/business/article/2001313744/captain-in-kq-s-maiden-flight-to-new-york-retires-after-42-years-of-service">launched direct flights< to the United States. 

Other than the substantial reduction in losses, Joseph, together with management and other airline industry executives and agencies, oversaw the commencement of direct flights to the United States of America, a route that both the country and the airline KQ had been eyeing for more than a decade.

This has been partly on account of security concerns at JKIA, which over the years failed to secure Category One Status from the US Federal Aviation Administration (FAA).

Joseph at the time noted commencing direct flights to the US was the biggest “symbol of the comeback of Kenya Airways”.

And while the route has put the carrier on the global map and even to an extent marketed Kenya as a destination both for tourists and travellers on transit to other destinations, senior KQ officials have in the past noted that it is a difficult route due to its seasonality. 

In December 2019, Joseph suffered a setback when the then-chief executive, Sebastian Mikosz, quit the firm before the expiry of his three-year tenure.

KQ hired Mikosz in June 2017, bringing excitement with his credentials of having salvaged LOT Polish Airlines, not once but twice.

The duo of Joseph and Mikosz played a key role in launching the flights to the US in 2018 and earlier in 2017, managing the carrier’s balance sheet restructuring in 2917.

The restructuring of KQ was described as the most complex transaction in the country’s corporate history. In the restructuring, banks had to convert their debts into equity, KQ’s longtime partner Dutch carrier KLM saw its take reduce to about seven per cent from over 20 per cent, while retail shareholders saw their stake diluted by 95 per cent.

Joseph also survived KQ’s employees’ labour unions, which have in the past proved not only powerful but troublesome, sending KQ’s senior officials, including the chairpersons of the board, packing by downing their tools.

These include former Finance boss Alex Mbugua, former chief executive Mbuvi Ngunze, and former chairman Dennis Awori, whose exits were all framed by the unions, which have remained powerful despite the decline of unions in many other industries.

Other than the exit of senior officials at the airline, the power of the Kenya Airline Pilots’ Association (KALPA) and the Kenya Aviation Workers Union (KAWU) is seen in the role they played in forcing the government to backtrack in its bid to hand over JKIA to Adani last year. This, they have done through grounding of the airline and airport’s operations, in disruptive and costly ways through go-slow and strikes.

The carrier’s board and management have been at a loss as to how to handle the unions. Joseph, together with his board members and management team through the years, appear to have found a sweet spot between the airline and the volatile unions, although he too experienced their disruptive nature.