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Making privatization fly

Making privatization fly

With Saudi Arabian Airlines edging closer to full privatization, other state-owned Gulf carriers – which face increasing competition from ‘budget’ operations – look set to follow.

March 23, 2010 2:42 by

The new airline company will be established with capital of KWD220 million ($764 million), al-Falah added.

Kuwait’s parliament decided to sell shares in the airline in January 2008, and plans to offer 40 percent of the stock to the public, 35 percent to a strategic investor, 5 percent to employees, and keep the remainder. The sale was initially scheduled to happen at the end of 2009, but was delayed.

Qatar Airways – “the world’s five star airline” – also thinks privatization can fly. In 2007, the airline’s CEO Akbar al-Baker said the airline wouldtake this step in the next three years. “We will privatize once we show three consecutive years of profit. This is the policy as given by our chairman,” he told reporters.

“Not only Qataris but international organizations will also be able to purchase an equity in the company,” Baker said. “The IPO will not exceed 49 percent of the company’s stock as 51 percent of the shares would be reserved for Qatar nationals so that the sovereignty of the country is not compromised,” he said at the time. “The existing agreements between Qatar and other countries will also not be compromised,” he added.

There are three main possible economic gains from privatization,according to a research report from Frost and Sullivan released few years ago.
They include: “improvements in operating efficiency (the private for-profit business model more often leads to a further exploration for means to cut costs and boost revenues than public management), the introduction of new management styles and marketing skills directed to serve users with a more consumer-oriented approach, and better investment decisions,” the report said.

With a number of private airline operators entering the region such as Air Arabia and Jazeera Airways, state-owned carriers are facing stiff competition. And so going private could be an effective way to boost returns.

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