Aviation: How they looted Kenya Airways the Pride of Africa

How they looted Kenya Airways the Pride of Africa


Mr. President Your Excellency Uhuru Muigai Kenyatta, this information should be in your knowledge and if not, it is now.

The stolen sums:

Sh76.6 billion – Ticket underpricing, cancellation, re-issue & fraud by “travel agents”

Sh5.4 billion – Foreign exchange inflated losses when KQ used a private “agent” instead of the banks

Sh1.8 billion – stolen in the disposal of old second-hand planes bought from KLM

Sh2.2 billion – Excess baggage fraud

Sh3.9 billion — stock theft during aircraft maintenance

Sh3.3 billion – arising from the inflated cost of jet fuel

Sh590 million – Kenya Airways money stuck in Angola

Sh521 million – stolen through foreign deals in repatriation of money from South Africa and Dubai

Sh400 million – Amount stolen through KQ paid to AAL for cargo transport, instead of KQ developing its cargo fleet.

A greedy web of corrupt Kenya Airways employees, crooked businessmen and a notorious Ethiopia-based money smuggler are behind the cartel of Sh100 billion five-year heist on Kenya’s national carrier, Kenya Airways.

The sophisticated looting schemes and leakage avenues, together with the money-trail so shocked the forensic auditors from global firm, Deloitte, to an extent that they have raised questions on whether KQ was complicit in a global money-laundering ring, which could have ended up financing terrorism in the Horn of Africa.

KQ used the black market to repatriate the money it made in Sudan, South Sudan, and Ethiopia back to its headquarters in Nairobi, Kenya. It used an “agent” named Khalid Mohammed Ali, who charged exorbitant exchange rates way above the market rate, and in turn made billions in profit, while KQ lost billions in foreign exchange losses. As a result of using the “counterparty”, really a money-launderer, to send money outside the formal banking system, KQ lost Sh5.4 billion.

When questions arose from KQ’s internal audit unit on why the airline kept using the “agent” when the other airlines had complied with the rules in Ethiopia and Sudan to use the formal banking system, an email shut these down: the transactions had been pre-approved by KQ’s Chief Executive Officer (Titus Naikuni) and the Finance Director (Alex Mbugua).

The dubious deals range from ticketing, cargo, jet fuel procurement, baggage manipulation, to theft of stock in aircraft maintenance. There’s also the reckless decision to purchase of old second-hand planes from KQ’s Dutch shareholder, KLM, at Sh2 billion, and then selling off the same aircraft at Sh200 million after just five years— incurring KQ a loss of Sh1.8 billion.

It is also in this instance that KQ’s management is revealed as a bunch of conmen, because, they invited the buyer of the planes to view the aircraft, but when the buyers left, the management “switched the engines” because they “thought it was in the best interest of the company to save money’. When the KQ Board pointed out that the switching of the plane engines behind the back of the prospective buyers was immoral, it went ahead and chose a Sh40 million reduction in price as the most prudent way to appease the buyers – not the reinstatement of the cannibalised engines!

There is also revealed an instance where a tech-savvy employee hacked into the OASES inventory management system, created an account “rk’ and within a year, made away with Sh60 million worth of stock. The auditors tried to trace the account, and even went all the way to the company that sold the system to KQ, but they never traced the person.

Besides, the airline lost Sh77 billion in undervalued tickets or the huge discounts given to travel agents, who then went to charge premium for KQ tickets. In one case, the KQ agents charged two government officials – from the Ministry of Transport and Infrastructure, which represents the government in the KQ board— nearly three times the prescribed fare, but only remitted the actual price back to KQ and were paid a commission for that sale.

The auditors believe this could be because some KQ employees secretly own travel agencies, and were therefore exploiting weaknesses in the pricing model to steal from the airline. Even in the procurement of jet fuel, KQ still bought overpriced fuel, and when the maths was eventually done, it showed that the airline had lost Sh3.3 billion.

The corporate greed, institutional shortcuts and system failures explain why for the past three years, Kenya Airways has been making losses despite the rise in revenues, and passenger numbers. The struggling airline, which serves 53 destinations – 43 of these in Africa– and which last year carried 4.2 million passengers from all over the world, earned Sh116 billion in revenues, but still made a record-breaking loss of Sh26.2 billion.

The rot is so bad that check-in staff waive the payment for excess baggage and they are paid under-the-table to let the plane fly with excess baggage. The problem with this is that is poses a risk to all the passengers, because, each aircraft has the maximum weight for a safe take off, which is calculated for a given set of conditions like runway dimensions, slope, elevation, winds, temperature.

“Manipulation of baggage weights could heighten the safety risk of the passenger planes at take-off,” the auditors said in their report that was submitted to the Internal Audit and Risk Committee of the KQ Board of Directors.

KQ also wound up a profitable cargo subsidiary, gave its business to a rival company, and paid Sh400 million to this rival company, instead of expanding its cargo capacity, the auditors said.

In 2013, when Kenya Airways made a loss of Sh7.8 billion – for the first time after years of making profits—the national carrier blamed the travel advisories issued against travel to the country by key market sources in the West due to fears of retaliatory attacks from the Al-Shabbab terror group, together with the unpredictable electioneering process.

A year later, that loss dropped to Sh3.3 billion, but the airline’s managers kept pointing out that the high fuel costs, escalating security concerns in its home market, weak global economic conditions and intense competition in the international remained a “major concern”

Now when the company made eight times that loss in their annual report for the year ended March 2015, and a similar amount for the year ended March 2016, in an environment of relative security, low oil prices, and a stable Europe the questions came in fast and furious. The management had run out of excuses.

Kenya’s Senate wanted to know what was happening to the airline in which the taxpayers, through their government owned 29 per cent of the shares. That pressure bit the KQ Board of Directors which then asked Deloitte to carry out the forensic audit.

Source: thebigissue.co.ke

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