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Kuwait Airways collects interest in privatisation

Deadline has passed for investors to submit expressions of interest.
NEWS, Aviation

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Potential investors have submitted their initial expressions of interest in acquiring part-ownership of Kuwait Airways.

Applications were welcomed until 25th August 2011 for a 35 percent stake in Kuwait Airways Company (KACnew), the forthcoming entity that will be established as a result of Kuwait Airways Corporation (KAC)’s privatisation.

“The Privatisation Committee of Kuwait Airways and its advisors are following-up with all parties that have made contact regarding the expressions of interest (EOI) phase,” confirmed a spokesperson for the committee, which was been established to overlook the privatisation process. “Our foremost commitment is to ensure the best outcome for the people and the economy
of Kuwait, as well as employees of the business. This will depend upon a number of factors, including the quality of the submissions received and current market conditions.”

To comply with legal regulations, interest could only be registered by specialised international companies or joint-stock companies listed on the Kuwait Stock Exchange, while the country’s domiciled airline operators were exempt. According to Saj Ahmad, analyst at FBE Aerospace, Kuwait Airways has failed to attract much attention from the investment market to date, because the national carrier is struggling to compete with successful counterparts from neighbouring countries such as Qatar and the UAE. “Overall, the privatisation of Kuwait Airways is not to be celebrated, rather it’s a question of whether the airline can raise enough capital to survive and redevelop itself or whether it collapses under the burden of debt,” he reasoned. “Kuwait Airways is a heavy loss making airline - turning it around will be no easy or cheap feat.”

The primary concern of investors was not initial costs, continued Ahmad, but the follow-up investment involved in updating the airline’s fleet with modern aircraft. “It has one of the oldest fleets in the Middle East and any share ownership will require billions of dollars in further investment to bring the fleet up-to-date, especially against a backdrop of rising fuel costs and the drive for efficiency using new fuel efficient airplanes,” he said. “The other cost issue is that the whole Kuwait Airways business model needs a new lease of life. It’s already playing second fiddle to Jazeera Airways in the GCC market and internationally, the likes of Emirates, Qatar Airways, Etihad Airways and even Gulf Air are way ahead. The carrier needs to put pressure on the Kuwaiti government to implement business attraction to the country and leverage passenger traffic flowing through Kuwait to onward destinations in the way that Dubai has managed.”

In addition to the 35 percent stake on offer to investors, Kuwait Investment Authority (KIA) will own 20 percent of KACnew, while 5 percent will be granted to employees and the remaining 40 percent will be sold in a future initial public offering. All assets, liabilities, rights and benefits from KAC will be transferred to the new entity.

“It’s not going to be a cheap, cheerful or quick exercise and in many ways this privatisation raises more questions than it answers. Gulf airlines such as Emirates have proven how government ownership can successfully work, but Kuwait Airways has only demonstrated how far behind the times it has become in comparison to rivals,” concluded Ahmad.

“If anything, Kuwait Airways could make a splash by joining one of the three big airline alliances. With Royal Jordanian’s membership of the one-world alliance being the only affiliation of an Arab airline so far, there is no reason why Kuwait Airways cannot catapult itself up the global rankings with an alliance. In one fell swoop, they would be able to hone in on greater passenger traffic and allow their customers to fly on the route networks of partner airlines at a cheaper cost.”

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