Monday, December 27, 2010

Airline Privatization in GCC/MENA

The region so far has seen two successful IPOs, Air Arabia and Royal Jordanian.

Air Arabia's privatization was quick and easy and it came after 3 profitable years, in March 2007.

Royal Jordanian's privatization was a longer and harder process, the IPO was launched in November 2007, after 3 years of profitability. However, the idea started in the late 1980s and was delayed by political events and armed conflicts. Non core activities were sold or partially sold off by the Government to pay off the airline debts and included the Duty Free, Catering, Training Center and Simulators, Maintenance and Engine Overhaul Facilities and its Corporate Aviation operation. The process was systematic and seriously started in 2000 with the sale of the Duty Free to Aldeasa and ended in 2006 when the government was ready to sell off 74% of the total shares.

At this time there are two airlines that are slated for privatization Saudi Arabian Airlines and Kuwait Airways. Both are unprofitable and highly subsidized by the their owners (governments).

Saudi Arabian Airline's privatization effort included a fleet renewal, a new network management system and sale of assets. 49% of Catering was sold off in July 2008 followed by the Cargo Operations (30%) in October 2008. The airline expects to be privatized in 2012 having signed up Al Ahli Capital and Morgan Stanley as financial advisers. The plan is to sell off Maintenance, Ground Handling and Flying Operations.

As for Kuwait Airways, the government has signed up Citigroup Inc, Ernest & Young and Seabury in August 2010 to handle the privatization of the Airline. The Kuwait Investment Authority is supposed to establish a new legal airline entity which will then be sold to investors, the employees and Kuwaiti nationals. No reports of structuring or fleet renewals have been published and to date all three carriers in Kuwait (Kuwait Airways, Jazeera Airways and Al Wataniyah) are not profitable.

Saudi Arabian Airlines seems to be on track in its efforts to privatize. However, the whole Kuwait Airways privatization process seems to be an enigma. Only time will tell

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