Court orders Kenya Airways to reinstate workers

NAIROBI Mon Dec 3, 2012 6:59am EST

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NAIROBI (Reuters) - A Kenyan court ordered Kenya Airways to reinstate hundreds of sacked workers, a move analysts said would squeeze the flagship airline's profit margin.

Kenya Airways, which is 26.7 percent owned by Air France-KLM, had shed close to 600 employees earlier this year to cut costs as anemic growth in Europe and rising fuel costs hurt profitability. Some of the workers took voluntary retirement, while others were made redundant.

Okweh Achiando, a lawyer representing 475 dismissed employees said the court ruled the company had failed to consult the workers and negotiate severance terms properly, adding that Kenya Airways had been ordered to reinstate them.

A Kenya Airways spokesman confirmed they had received the ruling and said a statement would be issued shortly.

The retrenchment cost 826 million shillings ($9.65 million)which hurt its first half performance but was expected to save the airline 1.2 billion shillings a year.

Kenya Airways' wage bill had more than doubled over the past six years to 13.2 billion shillings.

"Their future margins will be thinner so that will mean ... their earnings will diminish," said Johnson Nderi, head of research at Suntra Investment in Nairobi. "The margins are not sufficient to absorb unplanned (cost) overruns."

Shares in Kenya Airways hit an intra-day low of 11.50 shillings, 3.4 percent down on Friday's closing price.

"The Kenya Airways management should respect the law and reinstate us since the court has denied them a stay against the ruling " said Perpetua Mponjiwa, one of the fired employees. ($1 = 85.6250 Kenyan shillings)

(Additional reporting and writing by Richard Lough; Editing by Louise Heavens)

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