Kuwait Airways: Board opens the emergency exit

08 November 2007

A disagreement with ministers over adding to the fleet led to a mass exodus of board members.

Alafco announced on 5 June that it had signed a letter of intent to supply Kuwait Airways with 12 Boeing 787 Dreamliners and seven Airbus A320s for delivery between 2009 and 2014. The deal would have more than doubled the airline's fleet to 36 aircraft from 17. Despite many years of financial difficulties, it was a statement of intent by the airline that it was not prepared to watch its national carrier disappear out of sight.

By August, however, the arrangement had run into trouble. Kuwait's central tenders committee and Communications Minister Abdul Wahid al-Awadi, whose remit also covers transport, objected to the deal and the committee refused to sign off the contract, demanding proof that bidding had been truly competitive and that Alafco had been the lowest bidder. The government requested that bids from 14 other aviation groups be re-evaluated and insisted that about $220 million could be saved by ordering directly from the manufacturers. In its defence, the airline said Alafco could deliver the planes sooner than Airbus and Boeing. The national carrier's board protested it had selected Alafco on a competitive basis, although its 11.5 per cent stake in Alafco weakened its arguments. The tenders committee remained unconvinced and a few days later, Alafco declared the deal dead. Meanwhile, it emerged that the government had launched private negotiations with Boeing and Airbus to have the aircraft delivered sooner than Alafco could supply them, and at a cheaper price. Considering the company's dire financial plight, the government's reservations about the deal were reasonable. Why should an airline suffering chronic financial losses pay more than necessary for these aircraft? And if the planes are vital to driving the company's recovery and boosting its regional competitiveness, why wait longer than necessary to receive them? The way the government's intervention was handled, however, prompted a new crisis at the beleaguered national carrier. Al-Awadi was instrumental in halting the deal and launching the independent negotiations with the manufacturers. In doing so, he alienated the company's board members, who found themselves shut out of critical decision-making. 'The minister is the head of Kuwait Airways, but this does not allow him to interfere with all internal matters of the company,' says one company official. The board held a meeting with Al-Awadi on 6 September at which the minister was asked frankly if he would refrain from interfering in company affairs. When he refused, the entire body resigned as one, led by company chairman Sheikh Talal al-Sabah. Al-Awadi was unrepentant about his handling of the situation with the previous board. Stressing the need to make tough decisions to turn the company around, he re-emphasised his position in the business. 'Unfortunately, the board did not like the fact that Communications Ministry runs the company, so we brought in new management to improve service,' he says. Al-Awadi wasted little time, appointing a new chairman, Barrak al-Sabeeh, general manager of local mobile telecoms operator Zain. A board was appointed within days, with Al-Awadi heading a committee to lead negotiations with Airbus and Boeing over the aircraft.

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