Kuwait Airways On The Right Track

Last week a decree was issued creating Kuwait Airways Company a shareholding company that will take over Kuwait Airways Corporation. The company is tasked with privatizing the airline after restructuring it.
The board has a three year term and will be chaired by the Minister of Communication who will also name the board members.

The Ministry of Finance is tasked to covering the losses incurred by Kuwait Airways Corporation and to provide end of service benefits to any employee who wishes to leave the company.

The decree goes a long way towards addressing issues that delayed earlier privatization efforts.

This is similar to the Royal Jordanian privatization methodology except Royal Jordanian had a financial dimension to resolve; that was addressed by the sale of non core functions. Kuwait Airways has a staff issue.
The Workers Union has been accusing management of not safeguarding workers right. These are issues that can be resolved. Gulf Air came to an agreement with its labor union over employee layoffs.

This is not an easy task, Royal Jordanian's privatization took almost two decades to happen for several reasons mainly geopolitical and financial.

It is a step in the right direction and shows a government resolve to tackle the issue in a structured and realistic manner.

Kuwait Airways, Privatization At Last ........ Maybe

Since the A300-600 diversion to Meddinah on July 4th due to the loss of cabin pressure due to an engine malfunction and things were deteriorating. The government forced the airline to ground three (3) of the five (5) A300-600 for Inspection. An outcry about how unsafe the ageing fleet is has prompted an attorney to file  a lawsuit on July 9th to ground all flights and appoint a team of experts to examine the fleet (Click for full story). Of course, a well maintained ageing fleet is not necessarily unsafe or unworthy it is just more expensive. Several airlines operate older aircraft with no problems.

Kuwait Airways today, 12th of August 2012 accused the Parliament of obstructing all attempts of fleet renewal in 2005 and 2007 (Click for full story)

The Kuwaiti Cabinet is expected to issue a decree, after the Holy Month of Ramadan, to privatise the airline by transferring it to a company under the Public Authority For Investment and the formation of a new board.  The airline is expected to lease a few aircraft in the interim (Click for full story) to alleviate its safety issues.

The issue of workers rights has been and still is a sticking point, the Workers Union has been accusing management of not safeguarding workers rights (Click for full story).

Kuwait Airways is facing very tough times, and the government may decide to assume all the airline's debt in order to lure investors. However, issues of fleet renewal and workers rights under the new company need to be resolved and that is no easy task.

The coming few weeks should be very exciting and eventful.

Kuwait Airways .... Privatization The Way Ahead

Finally, the government of Kuwait has decided to provide the legal framework for the restructuring of Kuwait Airways as a precursor to its privatisation (read full story). The PrivComm has recommended the restructuring to the government despite the broad expressions of interest in the airline.

The recommendation does not come as a surprise, the airline has several issues ranging from chronic loss making over the last couple of decades. Staffing issues including numbers and productivity, their staff went on strike a week back for better wages. On top of that the airline is being investigated by the Government for corruption.

At last, the project is on the right track, how long the restructuring effort will take is unknown yet, but it will not be easy and probably painful.

Interesting times are ahead, as another GCC airline restructure.

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