Lawyers acting for Kuwait Airways insist that the dissolution of Iraqi Airways will not prevent the Kuwaiti airline pursuing its case for compensation.
Iraq's transport ministry has reportedly stated that Iraqi Airways will be shut down and declared insolvent, to end the legal wrangle.
But law firm Fasken Martineau, acting for Kuwait Airways, says that this strategy will fail.
"Any such move will not lead to the dropping of claims," says Fasken Martineau's Christopher Gooding.
He cites the Iraqi transport ministry as previously stating that assets from collapsed Government-run companies are transferred to the finance ministry, which would subsequently become the target for legal claims.
Gooding says the Kuwait Airways legal team has "full contingency plans in place" to deal with this "suicide threat" from Iraq's Government.
"It appears to me to be a sorry reflection of Iraq's attitude to its international commitments that liquidating its own national airline is seen as preferable to addressing those commitments," he adds.
"Threatening to start a new airline merely demonstrates what a cynical tactic this is."