In a conflict of interest, Kenya Airways employees formed a company that was retained by one of the airline’s suppliers to offer professional services on commission.

An audit by Deloitte revealed that an engineer in the maintenance department, his wife and a procurement manager formed a company in which they seconded their colleagues in the department. The airline staff ran the company contracted by the carrier to offer engineering services.

According to the audit, the manager formed the company in 2008 to offer consultancy services to existing and upcoming airlines and earned more than $110,000 in commission from one deal for maintenance of KQ engine parts.

“As stated in the company’s statement of purpose and list of services, documents retrieved from the manager’s computers indicated that the workforce included current and former KQ employees,” the report stated.

Forensic imaging of the manager’s computer showed that he had drafted a proposal for his firm to provide engineering consultancy services to a supplier that conducts freighter services on behalf of Kenya Airways. The same manager also provided bidding information to an aircraft supplier contrary to the airline’s and Kenya’s tendering procedures.

“It is unclear why the manager consulted the lessor on the choice of end of lease return projects even after highlighting the strict tender guidelines. During our interview with him, he speculated that the reason why he had told the bidder to adjust the prices was because he could have already been selected as the preferred bidder. We however ascertained that the bidding process had not yet been completed at that stage,” the audit report states.

The managers have since been recommended for disciplinary proceedings for non-disclosure of their interests in private businesses with the airline via its suppliers.

Safari Sevens sponsorship

The audit reveals a myriad of cases where serving and former employees defrauded the airline of millions of dollars in buying of jet fuel, maintenance and marketing services. Suppliers paid kickbacks or reciprocated by giving the employees business opportunities.

Sponsorship deals were also marred by improprieties. The auditors said that in the 2014 and last year’s sponsorships, there was no contract between KQ and the Safari Sevens organising team and, hence, no obligation to the event organisers. This past week KQ lost its Safari Sevens sponsorship of the Kenya Rugby team to betting company SportPesa.

“Our review of documents revealed instances of potential irregularities in the procurement process followed when selecting suppliers. We noted instances where purchasing orders for Safari Sevens related to procurements in 2014 and 2015 had been raised and approved after the services had already been received by KQ,” the auditors said.

Last week, Kenya Airways said a new chairman would take over from Dennis Awori, who will step down at the end of this month following the threat of a strike by the airline’s 450 pilots.

When the markets opened on Friday, Kenya Airways shares had gone up up 8.65 per cent, reaching Ksh5.70 ($0.057) as former Safaricom chief executive officer Michael Joseph was appointed the new chairman starting November.

Rise in share price

The shares have been falling since 2012, reaching a low of Ksh3.24 ($0.032) on September 7. At their lowest, investors rushed to take up the 4.5 million shares. The airlines shares jumped 6.5 per cent to Ksh4.90 ($0.05) in early trading on October 18, the day after the pilots suspended their planned strike.

There has been a 60.2 per cent stock rise over the past month, Reuters reported.

Early last week, a consensus forecast report by two polled investment analysts covering Kenya Airways advised investors to hold their position in the company noting that that Kenya Airways Ltd would outperform the market.

The latest investor returns show that two foreign institutional investors have recently acquired a 0.19 per cent stake in in the airline. Parametric Portofolio Associates LLC, a Washington-based privately owned investment manager that caters to high net worth individuals, bought 2.4 million shares of KQ representing a 0.16 per cent stake in the airline. On August 31, Boston Research & Management bought 400,000 shares in KQ, representing 0.03 per cent.

The purchases came just before the airline’s chief executive Mbuvi Ngunze announced that they were talking to four foreign institutional investors and airlines about buying a stake to raise cash for the carrier.

“The search for a strategic investor is part of a plan, drawn up with the help of US investment bank PJT Partners, to raise new debt and equity funds,” Mr Ngunze said at the time, without disclosing the amount the airline was looking at raising from the deals. Previously, the airline’s top management had said that it was seeking $700 million in capital through such a sale.

Last week, Kenya Airways announced a 58.3 per cent improvement on its net profit for the six-month period ended September. Its net losses had been reduced by $70 million. In its full year results, the airline’s revenues rose to $1.11 billion with analysts expecting it to grow by an average of 8.55 per cent over the next three years to $1.2 billion next year and $1.29 billion in 2018.

KQ is expected to announce its half year results on Thursday.

Mr Joseph will be tasked with implementing the recommendations of the August Deloitte audit report that revealed gross ethical and financial malpractices in the firms by its senior management, employees and suppliers.