Kuwait's national carrier faces turbulent times

06 November 2007

It has been an eventful year for Kuwaiti aviation. For its airlines, it has been one of mixed fortunes. The buoyancy of the low-cost market, and the strong performance of Jazeera Airways in particular, has been in marked contrast to the continued turmoil at the national airline, Kuwait Airways.

Throughout the year, the government has been looking at ways to bolster its flagship carrier. However, its efforts resulted in accusations of meddling from the com-pany's board, prompting a mass exodus. At the same time, efforts have been made to attract foreign investment into the industry, which still lags far behind its regional competitors. The government was also briefly embroiled in an international dispute with India over the frequency of flights between the two nations.

The fortunes of the national airline have continued on a downward trajectory. Kuwait Airways posted a loss of $80 million for 2006, its 15th year in the red over the past 16. By contrast, Jazeera Airways completed its first full year of operations with a profit of $8.7 million and revenues of $74.5 million.

Jazeera is so proving one of the successes in the Middle East's emerging low-cost sector. The airline expects to double its shareholder capital though a rights issue launched on 21 October, raising about KD 10 million ($35.7 million). The funds will help finance an order for 40 Airbus A320s made in the summer. On 15 August, the airline announced a 14 per cent increase in passenger traffic during the first half of 2007, and flotation on the Kuwait Stock Exchange is expected in November, with a listing in Dubai likely in the future.

At the same time, the newly launched Kuwait National Airlines Company, also known as Wataniya Airways, is preparing for its maiden flights early in 2009, capitalising on the strength of the low-cost sector. Although Wataniya's launch has been significantly delayed, in September this latest entrant to the market struck a deal with the local Aviation Lease & Finance Company (Alafco) to lease three aircraft for eight years from 2009 as part of its expansion.

Board games

Wataniya's deal with Alafco was the leasing group's first confirmed order in the wake of a collapsed BD 540 million ($1,900 million) deal with Kuwait Airways in the summer that precipitated the national carrier's latest crisis. The deal was abandoned when the government overruled the carrier's board and said the deal had not been tendered competitively and must be retendered (see box).

Despite the latest obstacles, the Kuwaiti government is trying to nurse the national carrier back to health, and also to invigorate the industry as a whole. The long-awaited privatisation of Kuwait Airways is still expected but plans for the sell-off seem to have stalled as the fallout from the Alafco deal dominated company proceedings in the summer (see box).

The government still intends to sell an 80 per cent stake in the carrier, with 40 per cent of this disposed of through an initial public offering (IPO), and a further 40 per cent offered at auction to companies listed on the Kuwaiti bourse. The government would retain 20 per cent but, not surprisingly given the recent turmoil, no timescale for the IPO has been mentioned for some time.

Kuwaiti Communications Minister Abdul Wahid al-Awadi announced the government's intention to compensate the national carrier for its operational losses. The new board is being given an opportunity to begin work with a clean financial slate, although whether it can stem the endemic losses in the firm's operations remains to be seen.

At the same time, the state has announced plans to offer a 10 per cent discount on fuel charges to all airlines operating in and out of the country. The decision will include cargo flights as the country tries to attract new airlines and stimulate economic growth. As competition grows in the region, Kuwait has recognised it must step up efforts to raise its profile as a regional tourist destination.

A decision on whether to continue with securing the new aircraft from Airbus and Boeing will be made by the new board in the coming days. Publicly, company officials are upbeat about the firm's future. Privately, however, they concede that Kuwait's national carrier is some way off the pace being set by other regional rivals.

'It has been a tough year,' says one company official. 'A lot has happened in the firm. But we have a new board and the government is looking to move the firm forward. We hope to secure these planes as we need to expand, but we will see what the board decides.'

A MEED Subscription...

Subscribe or upgrade your current MEED.com package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications