MENAFN - Arab Times
Kuwait- Carrier Intends To Replace Current Fleet
Oliver Cornock, Regional Editor, GCC, Oxford Business Group
(MENAFN - Arab Times) A recent decision by a parliamentary committee is expected to clear the way for the privatisation of Kuwait's national airline, which in turn could reinvigorate a long-stalled programme to open up ownership of other state enterprises - or at least parts of them - to the private sector.
In early January the National Assembly announced it had approved the privatisation of Kuwait Airways.
Exact details of the planned sell-off were not released, though international media cited officials as saying there had been no changes to earlier plans for the division of shares. Under a privatisation law on Kuwait Airways passed in May, 35% of shares in a public-sector asset that is being opened to private ownership is to be sold at auction to private or foreign investors.
A further 40% would be allocated for sale to Kuwaiti nationals through an initial public offering (IPO), with the state retaining a 20% holding in the company and the remaining 5% being distributed to employees of Kuwait Airways.
Salem Al Othaina, the minister of communications and housing, said that the privatisation could take up to three years, a period that would take into account a restructuring of the carrier to make it more viable and more appealing as an investment vehicle.
Before any sell off, Sami Al Nasef, Kuwait Airways' president, said the carrier would undergo a complete renewal of its fleet, currently comprising five Airbus A300-600s, three A310-300s, three A320-200s, four A340-300s and two Boeing 777-200s.
Al Nasef said in January that 10-12 aircraft in the carrier's fleet are operational, and the rest are undergoing "extended maintenance". The firm intends to replace the current fleet and purchase 20-21 new aircraft within the next two years.
The airline has also sustained losses in recent years: Al Othaina told lawmakers in late January that the airline lost 1bn in the past four years, an amount the government intends to cover.
Kuwait Airways has long been seen as the flagship sale in the country's privatisation programme. In 2010 Citigroup, Ernst & Young and aviation services firm Seabury were appointed to manage the privatisation of the airline, part of a 2008 plan to sell off the carrier that has currently stalled.
If Kuwait Airway's privatisation does get under way, it could be the first of many such sales, with the next target likely to be the national stock market. In January Kuwait's Capital Markets Authority (CMA) signed an agreement with HSBC Bank Middle East to oversee the privatisation of the Kuwait Stock Exchange (KSE). Under the terms set out by the government, 50% of the exchange is to be sold to listed companies with a cap of 5% to any single buyer, and the balance offered to Kuwaitis via an IPO.
However, the process hit a hurdle late last year, when it was discovered that a clause in legislation establishing the CMA prevented the agency from conducting commercial activities.
This would prevent the authority from operating the exchange in the lead up to privatisation or require it to sell its holding. To avoid any conflict, parliament will be forced to vote on an amendment to the act governing the CMA, a step that may be taken later this year.
"Privatising the stock exchange is a unique task for Kuwait," Saleh Al Falah, the chairman of the CMA, told OBG. "There are some legal and technical issues, but the importance of the task is paramount. It is well known that private stock exchanges run better than public exchanges. If Kuwait wants to be competitive in the future we will need to boost our know-how and expertise in financial markets."
Moves to privatise the exchange, and proposals to take other state entities public, have met with opposition in the past, with labour organisations and staff speaking out against the plans, which they see as a threat to job security.
In early 2012, following reports that the KSE would be privatised, staff warned they could take strike action to protest against the shift into the private sector. Concerns over future industrial relations disputes could worry some investors, though any unease could be dissipated through negotiations with opponents of the KSE sell off and other privatisations.
Once Kuwait establishes a track record with its initial privatisations, opposition to the process may also fade, especially if local shareholders start to see a return on their new investments.
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