Kuwait delays state airline's privatisation

Kuwait delays state airline’s privatisation

Struggling airline to restructure operations; Committee says completed review of bids; Airline was eyeing $280 million privatisation

October 30, 2011 3:09 by Reuters

State-owned Kuwait Airways has delayed plans to privatise the airline and will now push ahead with a restructuring of the ailing carrier, a committee formed for the privatisation process said.

The national carrier, which was established in 1954, has been struggling to cut losses and increase revenues amid rising competition from other regional carriers like Dubai’s Emirates and Abu Dhabi’s Eithad Airways.

It was offering 35 percent of its share capital of 220 million dinars ($805.3 million) to potential long-term investors, amounting to around $280 million, as part of the privatisation process aimed at transforming the airline to an efficient and lean operator.

“The delay in privatising KAC gives us the opportunity to address a number of operational and structural issues ahead of a future privatisation programme,” it said in a statement on Sunday.

The privatisation committee said it completed the review of the expressions of interest (EOI), which was initiated in August. It said it received interest from local and international parties, without giving further details.

The committee made a recommendation to the Council of Ministers to proceed with a restructuring plan before undertaking the privatisation process.

The plan has been approved by the ministers who are proceeding with an amendment to the 2008 law providing the legal framework for restructuring the airline, the statement said.

AMBITIOUS PLAN
The struggling airline’s privatisation plan was seen as ambitious by many analysts, thanks to factors including high operating costs, political concerns and the offer price, which was perceived to be high.

Etihad Airways said in August media reports that it would be interested in Kuwait Airways were “speculative”. Qatar Airways also steered clear of claims that it may be a potential suitor.

The privatisation committee had said the Kuwait Investment Authority, the country’s sovereign wealth fund, would own 20 percent of the new airline company which would have a predetermined share capital of 220 million dinars ($806 million).

Joint-stock companies listed on the Kuwaiti bourse and “specialised” international firms were allowed to subscribe, the company had said in a statement in August.

Kuwait’s parliament had approved a plan in 2008 to privatise loss-making Kuwait Airways. Under the plan, the government was to sell 40 percent of the airline to the public and 35 percent to a long-term investor.

Last year, Kuwait appointed Citigroup Inc. , auditors Ernst & Young and aviation consulting firm Seabury to handle the privatisation of the carrier, which has a fleet of 17 planes.

Kuwait, the world’s fourth largest oil exporter, is on a drive to boost its private sector and become a regional financial centre. Its economy is largely dependent on oil revenues and driven by government spending. (Reporting by Praveen Menon, Editing by Dinesh Nair and Helen Massy-Beresford)