The cash offer – compensation for planes and equipment stolen during Iraq’s invasion of Kuwait in 1990 – is now being discussed by the countries’ governments. Kuwait Airways had been seeking $1.2bn to settle the debt.

A previous offer of $200m in cash alongside revenue or code-sharing agreements between Kuwait Airways and Iraqi Airways was abandoned as no accurate figure could be placed on the value of the deal (MEED 12:9:08).

However, while Iraq claims the $500m figure has been settled and only the timing of the payment is now in dispute, Kuwait says nothing has been agreed.

“The two sides reached agreement on the amount of the settlement but talks fell through on the terms of payment,” says one source on the Iraqi side. “Kuwait Airways wanted payment within 60 days or a guaranteed deposit with an international bank early next year.”

“Iraqi Airways had no authority to offer $500m, and Kuwait Airways [had] no authority to accept it,” says another source close to the Kuwaiti negotiating team. “The $500m has been discussed at length but there has been no agreement on anything. All that has been agreed is to consult the respective governments if $500m would be acceptable if paid immediately, and how it would be secured. Our formal position is that we want $1.2bn.”

The timing of any payment will be difficult to finalise as Iraqi Airways claims not to have enough money available and says it must be raised through parliament in an allocation to the 2009 budget.

“This is politically sensitive,” says the Baghdad source. “The Council of Ministers does not think it would get a one-off payment like this past the Council of Representatives, so it would have to be included in a larger package of reparations.”

Kuwait has rejected Iraq’s claims that it cannot raise the money, particularly as Kuwait Airways is seeking to impound 10 Bombardier aircraft ordered by Iraq earlier this year as part of a $5.5bn deal for new planes.