Kuwait Airways submits leasing plans as privatisation stalls

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Kuwait Airways Corporation has submitted two proposals to lease either five or 10 aircraft during the course of the next parliament, amid growing recognition that its privatisation process has stalled and direct aircraft purchases remain a distant prospect.

The temporary fleet renewal will include dry leases for Boeing 737 or Airbus A320 narrowbodies, as well as 777 or A330 twin-aisles.

"We have submitted the fleet development plan to the government," says the airline. "The government will decide whether it will be five or 10 [leased aircraft]. If it is five, they would be for certain destinations only. But if it is 10 we can expand [the existing route network]."

The leasing strategy comes after the airline grounded three aircraft - one each of its A300s, A310s and A320s - following the political backlash over an A300 emergency landing in Medina in July. The grounded jets will remain out of service "for at least between six and nine months", the airline says, prompting reduced frequencies on services to Cairo, Beirut and the Indian subcontinent.

It also follows the collapse of the most recent KAC privatisation bill in parliament. The latest draft legislation had received the approval of Kuwait's Cabinet earlier this year, but it was abandoned before being voted on by the National Assembly due to the dissolution of parliament in June.

The airline insists that the government remains committed to privatisation under a legal framework drawn up in 2008, though the timeline remains uncertain.

"[The interim] parliament will be dismissed, but we don't yet know when exactly," it says in reference to the pro-government ministers appointed over the summer. "There are some important decrees with the government that will be issued in between parliaments The Emiri decree will establish Kuwait Airways Company, and from there the whole process will start."

The most recent privatisation bill stipulated a three-year timeline and was effectively a watered down version of a previous plan - abandoned in October 2011 - which called for a 35% stake to be sold to strategic investors. Unlike that proposal, however, the latest draft made no mention of a predetermined share capital of KD220 million ($785 million), which had been seen as overly ambitious by many.

Aviation consultancy firm Seabury is no longer advising KAC on the privatisation process, a company director confirms to Flightglobal.

Although sovereign wealth fund the Kuwait Investment Authority (KIA) has yet to flesh out details of a replacement proposal, it has said that some restructuring will be pushed through before a strategic investor is in place - paving the way for immediate changes.

A spokesperson for the airline speculates that measures likely to be taken shortly after the Emiri decree will include reshuffling the board and signing the short-term leases. Several lessors have already submitted fleet renewal proposals, he notes.

But KAC downplays expectations that aircraft purchases will materialise in the near future, saying: "That is for the strategic partner who's going to buy the company to decide. They will decide whether to buy or not, and what kind of aircraft." In 2007, the Kuwaiti government cancelled KAC's previous order for 19 new aircraft, including 12 787s, citing poor financial performance.

Kuwait's flag carrier operates a fleet of 17 aircraft with an average age of 18 years, comprising five A300s, three A310s, three A320s, four A340s and two 777s.