The search for a compensation agreement between the national airlines of Iraq and Kuwait has again stalled, after an acrimonious meeting in the Kuwaiti capital.

The meeting, held on the fringe of the US-led Iraq neighbours conference in Kuwait City in April, was attended by Iraqi Prime Minister Nouri al-Maliki, and Kuwait Airways chairman Hammed al-Falah, along with other ministers.

The two sides met in an attempt to resolve Kuwait Airways’ $1.2bn compensation claim for aircraft and equipment stolen by Iraqi Airways in 1990 (MEED 20:3:08).

Sources say the latest negotiations broke down when Al-Maliki, with the backing of the US State Department, attempted to persuade Kuwait Airways to drop demands for repayment of the debt. When the Kuwaiti delegation refused, Al-Maliki walked out of the discussions and refused to sign the minutes of the meeting.

With both airlines set to privatise within two years, the two sides are keen to settle the dispute.

The case has already spent 18 years in the UK courts, but has come to a head as a result of Iraqi Airways’ recent $5.5bn deal with Boeing to buy 40 new aircraft (MEED 28:3:08). Baghdad had previously claimed it could not afford to repay the debt to Kuwait, which says it will seize the planes to settle its claim if they land outside Iraq.

The US continues to put pressure on Kuwait Airways to drop the claim as part of the wider package of international debt forgiveness to boost Iraq’s economy.

Kuwait Airways stresses it is open to a range of possible solutions, but that it expects to be compensated fully.

“My feeling is that there is a commercial settlement to be done, not involving a lot of money, but ensuring future business opportunities for Kuwait in Iraq,” says a source close to the negotiations.

Further acrimony appears likely, however. On 8 May, the two sides will meet again for a hearing to agree the level of legal costs incurred in the case, which are estimated at $50-80m.

Sources on the Kuwaiti side have already alleged that Iraq is preparing to submit forged documents at the meeting.